Forex Fury trusted trader or scam

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How to Avoid Forex Trading Scams in 2020

Forex markets trade trillions of dollars a day. Traders around the globe are always looking for the best broker to trade forex, CFDs, binary options, stocks, cryptocurrencies, etc. With new forex brokers popping up constantly, determining the legitimacy of a broker can be a real challenge. As a consumer, it is vital to research a company before depositing money to trade. At ForexBrokers.com, it’s our mission to assist you as much as possible with that research.

Most Trusted Forex Brokers Comparison

Taken from our forex broker comparison tool, here’s a comparison of the must trusted forex brokers.

Feature IG
Visit Site
Swissquote
Open Account
CMC Markets Saxo Bank
Visit Site
Trust Score 99 99 99 98
Year Founded 1974 1996 1989 1992
Publicly Traded (Listed) Yes Yes Yes No
Bank Yes Yes No Yes
Tier-1 Licenses 6 4 4 6
Tier-2 Licenses 3 1 2 1
Tier-3 Licenses 1 0 0 0
Authorised in the European Union Yes Yes Yes Yes

Questions to ask to avoid a forex trading scam

  • Is the broker regulated?
  • If regulated, how trustworthy is the regulatory body?
  • Is the broker offering profits or rewards for opening an account?
  • Is the broker offering a cash bonus for opening an account?
  • Is the broker offering automatic trades or signals to guarantee profits?
  • Is any credible information about the company included on its website, such as company history, financials, headquarters’ address, or similar?
  • If awards are cited, can I verify their authenticity?
  • If a big corporate sponsorship is promoted (e.g. athlete sponsorship), am I doing my due dilligence to ensure the company can be trusted?

1) Is the broker regulated?

Unregulated brokers do not have to report to a governing body. This means that if they scam you in any way, whether it be “glitches” or “malfunctions” causing sever slippage in their system, or you go to make a withdrawal and they don’t process it (steal your money), you are out of luck. Beyond posting a bad review online, there is little you can do because these brokers have no legal authority to answer to.

How do I check if a broker is regulated? The easiest way to check a broker’s registration is to look for it at the bottom of the website. The picture below is the bottom of 12Trader, a broker we recommend avoiding. You’ll notice that nowhere in this picture is a regulatory body mentioned. The “about us” pages on the site link to an account login prompt. Nowhere on the site is there any mention of regulation or company history. All of these warning signs should make you cautious.

Now let’s look at the bottom of the homepage of City Index, a trusted and regulated broker.

You will notice 1) the company specifically warns of the risks involved in trading CFDs, 2) the company is registered in England and Wales and has posted an address, and 3) the company is authorized and regulated by the Financial Conduct Authority, and has posted a registration number.

Conclusion: A regulated broker is required to include proper risk disclaimers and regulatory information at the bottom of all their website pages. To make it easy for investors, ForexBrokers.com includes a Trust Score for each broker, which assesses overall trustworthiness based on where the broker is regulated and its history as a firm.

2) If regulated, how trustworthy is the regulatory body?

Some scam brokers claim to be regulated and registered by a governing body that does not monitor or regulate forex companies.

For example, let’s look at Evolve Markets.

The disclosures at the bottom of the homepage give the appearance of a regulated broker. There is a warning of the risks of trading CFDs, and there is a legal section. Upon further examination of the legal section, you’ll notice that while the firm is registered as an international broker company in St. Vincent & the Grenadines, it is not regulated.

This statement from St. Vincent & the Grenadines shows there is a warning against false claims of registration or license.

How do I know what regulatory bodies are legitimate?

Forex brokers that are regulated in a major hub are always more trustworthy. Brokers in emerging hubs can also be trustworthy, but caution is warranted. Based on our annual study of regulatory trustworthiness, here is a list of the regulatory bodies we track and how trustworthy each one is:

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  • FCA Regulated – Financial Conduct Authority – United Kingdom – (Great)
  • CySEC Regulated – Cyprus Securities & Exchange Commission – Cyprus (OK)
  • ASIC Regulated – Australian Securities & Investment Commission – Australia (Good)
  • SFC Authorized – Securities Futures Commission – Hong Kong (Good)
  • MAS Authorized – Monetary Authority of Singapore – Singapore (Good)
  • FSA Authorized – Financial Services Agency – Japan (Good)
  • IIROC Authorized – Investment Industry Regulatory Organization of Canada – Canada (Good)
  • FINMA Authorized – Swiss Financial Market Supervisory Authority – Switzerland (Good)
  • FMA Authorized – Financial Markets Authority – New Zealand (OK)

Conclusion: Double check the authority of the governing body that regulates the broker you are looking at. You can go to the website of the governing body to search for the registration number and verify its legitimacy. To help investors find a trusted broker where they live, we have created country-specific forex broker guides.

3) Is the broker offering profits or rewards for opening an account?

Scam brokers often make claims such as “make $50 a day from a $250 investment” or “make 80% returns on profit signals” or “96% success rate.” These claims are a scam, regardless of whether they are being made for forex, CFDs, or binary options. Forex brokers should not promise returns at all, small or large. Simply put, if a broker is promising to make you money, it is a scam. Other common scam practices include advertising pictures of expensive cars that are given away to lucky investors.

This Wikipedia page on binary options does a great job of summarizing risks related to binary options:

“Many binary option “brokers” have been exposed as fraudulent operations. In those cases, there is no real brokerage; the customer is betting against the broker, who is acting as a bucket shop. Manipulation of price data to cause customers to lose is common. Withdrawals are regularly stalled or refused by such operations; if a client has good reason to expect payment, the operator will simply stop taking their phone calls. Though binary options sometimes trade on a regulated exchange, they are generally unregulated, trading on the Internet, and prone to fraud.”

Conclusion: If a binary options or forex broker promises you big returns on your money, this is a clear sign of a scam. You will not make $100,000 on a mega-trade; you will not make a 96% profit in 30 seconds; and you will not win a $40,000 car by depositing $2,000. Save your money and STAY AWAY.

4) Is the broker offering a cash bonus for opening an account?

When a broker offers an abnormally high cash bonus, is not regulated, and does not show offer details for the bonus, then you are likely dealing with a scam broker. For example, 1000Extra hints at a bonus of $1,000 with their vague promotional offer. If you click around trying to gather more information you are redirected to sign up for an account.

1000Extra is not regulated, has minimal information about the company, and has scam reports across the web.

Conclusion: In most regulated regions around the world, promotional bonuses for opening a new account are not allowed. The two exceptions are the United States, which is for US citizens only, and Asia.

Trusted ATFX Forex Broker Review

Table of Contents

Is ATFX a reliable Forex Broker or not? – In the following review we will proof the online broker ATFX and show you the conditions for traders. Nowadays it is very hard to find a good Forex Broker. ATFX is one of the biggest in the industry. With more than 7 years experience in online investments we will find out if it is a scam or not. Read the following sections to get accurate information about the company.

Official ATFX website

ATFX Account types

Official Regulation FCA (UK)

Review: (5 / 5)
Regulation: FCA (UK)
Demo account: ✔ Free
Minimum deposit: 500$
Assets: 100+
Spreads: Starting 0.0 pips (variable)
Support: 24/5, webinars, tutorials, analysis, coachings
Special: 4 account types
Execution: NDD (no dealing desk)

(70.16% of private investor accounts lose when trading CFDs)

What is ATFX? – The FX Broker presented

Owned by AT Global Markets Limited (UK) and part of the AT group, ATFX is a relatively young Forex Broker already establishing a positive reputation on an international level, which is all thanks to the good conditions and competitive conditions they generally offer in terms of their proposed investment services. The existence of this platform alone, coupled with the limited number of assets, may be a threat to other trading platforms.

Still, the features AFTX offers make it an option worth considering for private and even professional traders. ATFX is specialized for forex trading and gives the clients a fast execution through big liquidity providers. The company is based in the United Kingdom and shows us high transparency in their trading offers.

Facts about ATFX:

  • The company is based in the United Kingdom
  • Specialized for forex trading
  • Huge range of varierity for currency investments
  • Sponsor of differen sport teams
  • Awarded FX Broker
  • No dealing desk broker with big liquidity providers

Regulation of AFTX – Is the broker regulated?

AFTX is regulated and authorized by the FCA (Financial Conduct Authority) and hence has its headquarters situated in the United Kingdom. Their FCA registration number of the company, as well as the company number, is 7605555 and 09827091, respectively. Also, the company is officially known as AT Global Markets (UK) Limited.

For FCA authorizing the company officially means it is approved the company as an FX and CFD broker. This goes further to say that part of FCA’s authorization to the company would imply that ATFX is obliged to follow the agency’s policy to the letter, some of which include fair treatment of clients as well as protection and management of clients’ funds.

AT Global Markets (UK) Ltd. is regulated by the Financial Conduct Authority (FCA) in the United Kingdom with the number 760555.

Financial Security for traders

The company is fully committed to ensuring that client funds are fully protected anytime, any day. To protect the data of clients, the company employs the latest encryption technology currently available coupled with highly effective protective measures and strict supervision. Knowing this, traders can trust the platform and confirm that the trading environment is truly safe and reliable as it looks.

Moreover, the way ATFX works is by segregating client funds into trust accounts, which are all in the custody of Barclays Bank PLC. This kind of structure creates order in the company as the funds of ATFX are not mixed with those of its clients. Also, it is worthy to note that should in case an issue arises, and the company becomes insolvent, your funds will remain intact. As long as they are segregated, it is impossible to use them to reimburse creditors.

To protect against an unfortunate event of insolvency, ATFX has an FSCS (Financial Services Compensation) coverage. This scheme is only available for clients trading with organizations authorized by FCA. It comes into effect in a special case that the company is unable to satisfy its repayment claims. What happens, in this case, is that the FSCS awards each client a compensation fee of about £85,000 for eligible investments.

That’s not all, ATFX also has its automatic personally-built accounting system whose function is to approve withdrawals only when it has verified that the identity of the client matches the information provided on the client’s account.

Facts of the financial security:

  • ATFX is using only secure regulated payment methods
  • Clients funds are seperated from the companies funds
  • ATFX does not use clients money to hedge or invest
  • ATFX is a FSCS member with protect your money if the company or a bank will fail
  • The funds are managed in the Barclays bank

(70.16% of private investor accounts lose when trading CFDs)

Review of the conditions and offers

ATFX is a fast-growing Forex Broker with amazing competitive trading and also spread conditions. Of a truth, the number of assets is limited up to 100. This does not displace the fact that the platform is a good one on a general level. You can trade currencies (forex), commodities, cryptocurrencies, indices, and shares by starting with a low amount of money.

As mentioned before the company is specialized for forex trading. More than 40 different pairs are available. This includes majors, minors, and exotic currencies. The execution is very fast and the spreads are low. Because of different account types, traders can gain advantages and pay less trading fees.

ATFX sample currencies

The maximum leverage is 1:30 for retail investors. Professional clients can get a higher leverage of 1:400. The minimum deposit is 500$ but you can start with a free demo account for testing the platform by yourself. In addition, each trader gets a good service by the support.

For trading the well-known and popular Software MetaTrader 4 is offered. The platform has gotten a lot of great feedback from traders and investors in the currency market and should be taken into account when selecting an excellent online trading platform.

Facts about the conditions:

  • Free demo account for practice
  • Different account types
  • Minimum deposit 500$
  • Spreads starting 0.0 pips
  • More than 100 different markets
  • Fast execution
  • Leverage 1:30 (retail) 1:400 (professional)
  • MetaTrader 4 software

Test of the ATFX Trading Platforms

The clients of this online broker has the possibility of accessing the markets through several trading platforms with the following basic characteristics:

ATFX MetaTrader 4 for desktop

  • Metatrader 4: It is one of the most complete and popular trading platforms in the Forex market sector and CFDs for retail traders thanks to its multiple trading tools. It is a downloadable application that offers a wide variety of market analysis tools such as advanced graphics with various time frames, updated quotes, dozens of technical indicators, and similar ones. This platform has several types of orders to operate in the market, also offers the user the possibility to create, evaluate, and implement automated trading systems called Expert Advisors based on all types of strategies.
  • MT4 Webtrader: It is a web-based online application, which does not require download or installation and can be accessed through the ATFX website from any site with an Internet connection. Among its resources, this platform has functions for managing positions (opening, closing, etc.) and market analysis tools, such as updated news, updated quotes, price charts, and technical indicators. It is compatible with Metatrader.

Available for any device

Analysis and charting of the ATFX markets

ATFX has a complete section dedicated to technical analysis. This comprises market news and analysis of some of the markets known to be very popular, such as oil, indices, cryptocurrencies, and precious metals. These reports are published severally weekly. This also updates focus on particular products, including predictions, influences, and much more.

ATFX sample analysis

For traders to make better decisions, ATFX provides a daily market report so that traders are informed hence preventing them from making costly mistakes that will affect them in the future. These reports include technical and fundamental elements that can influence the price behavior of different markets. The report shows sentiment figures related to small and large market participants. Also, another part this involves is traders’ focal techniques and tactics.

Even if you do not want to use the daily analysis you can join webinars for free or use technical indicators and tools in the trading platform. MetaTrader 4 is very customizable and gives the trader access to a huge range of tools. In addition, you can implement extern indicators or programs.

This is a daily market report can be downloaded from the platform’s site. You will also see the previous markets as well as reports of recent months that have passed. It is a third party that creates these market reports. By the third party, I mean ATFX does not validate either can they ascertain the integrity or accuracy of the reports. Even so, the inclusion of ATFX customer reports is an extremely useful tool. Besides, they save a lot of time in research or complement other trader research strategies.

Asides the daily market reports, ATFX also provides fundamental analysis comments, which is normally recorded by a market analysis research team. This often includes detailed as well as updated information useful to the trader. Moreover, traders become better informed and organized when they find articles that talk about advanced economic indicators, upcoming events, and also fundamental movements within the fundamental market comments. These comments are usually published weekly on the Analysis section of the platform’s site.

Mobile Trading (App) with ATFX

ATFX mobile trading platforms come in versions of MetaTrader 4. So you can download the application that supports either the Android or Apple devices for yourself, allowing you to trade anywhere and anytime.

Mobile Trading for any device

Some extra features that come with the iPhone MT4 application include EAs and personalized indicators. This also applies to the Android application as all mobile versions have been built to include complete functionality and full performance of the tools of several functions. Some of which are advanced chartings like rapid analysis and customization. There is also flexibility when it comes to making adjustments to your strategy and full support for assets, hence enabling a possibility of diversification.

(70.16% of private investor accounts lose when trading CFDs)

How to open your free account

As for the opening of a trading account with the ATFX broker, it is an effortless and fast procedure in which customers only have to complete a simple form on the company’s website. In this form, relevant trader information is requested that includes the following:

  • Personal data (full name, sex, email, telephone number, country of residence, type of account of your interest, etc.).
  • Financial information.
  • Knowledge and experience in the markets.
  • Others

ATFX account opening

Once the client completes the form, the broker activates the account immediately. However, he must also send the necessary documents that prove his identity and his address so that the account is verified and so he can access all the services. This is because ATFX is a regulated broker, and to avoid money laundering and other similar practices, the person must prove that he is who he says he is.

In this case, the trader can start operating in the market once he deposits the necessary funds. The minimum deposit to operate with this broker is $500. The methods accepted by this broker to deposit and withdraw funds from their trading accounts are the following: credit card (the most important ones such as VISA and Mastercard), bank transfer, Skrill and Neteller.

ATFX Demo Account for free

One great way to get started and have a feel of the features the ATFX platform offers has a demo account. This proves to be a very useful tool, especially for enthusiasts and beginners who are either moderately or much new to the platform as it enables them to sharpen their trading skills. Even advanced traders also use this account to test-run new strategies that may be risky if using their main accounts.

ATFX offers a free and unlimited demo account with a balance of up to 5,000,000.

Different Account Types are available

For traders who want to start with ATFX, there are different account types available. This is a good option to get tighter spreads or different leverages. Overall, there are 4 different account types which we will show you in the next table. If you make a bigger deposit you will trade with better trading conditions.

Standard Account: Edge Account: Premium Account: Professional Account:
Minimum deposit: $,€,£ 500 $,€,£ 5,000 $,€,£ 10,000 $.€.£ 5,000
Spreads: Starting 1.0 pip Starting 0.6 pip Starting 0.0 pip Starting 0.6 pip
Commission: No No Yes No
Lot size: From 0.01 From 0.01 From 0.01 From 0.01
Free VPS: No Yes Yes Yes
1-on-1 session: No Yes Yes Yes
Quarterly Catch up: No No Yes Yes

(70.16% of private investor accounts lose when trading CFDs)

How to deposit

When making deposits, there are three options available on ATFX, and these are debit and credit cards, bank transfers, and e-wallets.

ATFX comes with no fees for any deposits, and all methods support deposits in USD (US dollars), EUR (Euros), and GPB (Pounds Sterling). You may be charged with a small processing fee by your provider if it so happens that you’re using debit or credit cards outside the UK. However, if you can account for the charges by providing a receipt, the company will reimburse you. Deposits made with either debit cards, credit cards or e-wallets reflect within 30 minutes after the deposit has been made while bank transfers appear in your trading account a working day after ATFX has received the funds.

ATFX Payment methods

How to withdraw

Just like the same features, ATFX offers when making deposits, the same applies to withdrawals. You can withdraw in those three currencies on all three methods, and no, the company charges you no fees whatsoever.

If you want to deposit funds into your account on the platform, log into your account. Visit the site where you have CLIENT PORTAL, and you will see DEPOSIT, select it. Bear in mind ATFX does not accept third-party payments, which could mean that your deposits must and must only come from your accounts.

If you’re going to withdraw, go to the same place you went earlier, which Is the CLIENT PORTAL. Select Withdrawal. Do take note that you are only able to make a request for withdrawal per day.

Summary of the payment transactions:

  • Credit cards, bank transfer, e-wallets payment methods
  • Instant deposits are possible
  • Withdrawals are done in 1 – 3 working days
  • You account have to be fully verified
  • No fees for deposits and withdrawals

ATFX fees: How much does it cost to trade?

It is a huge advantage that there are only trading fees for the clients. ATFX does not charge any fees for the account opening, inactivity, or services like deposit and withdrawal. The Forex Broker only earns money through spreads and commission. The more you trade the broker can give you better spreads.

Generally, the spreads are variable but very tight. So the trading fees can be depending on your asset to trade. You can choose between the spread account or commission account. Overall, ATFX is cheaper than the most Forex Brokers.

Professional education resources for the trader

ATFX include daily and weekly tutorials and analysis of the main financial markets. These resources are free and are detailed below:

  • Access to technical analysis tools of Trading Central, a leading provider of market analysis studies with reports, strategies, and professional studies for a large number of markets, including Forex, commodities, precious metals, and indices. It provides investment studies of multiple investment banks, managers, professional brokers, and others.
  • Daily analysis of the markets carried out by experts.
  • Free webinars and 1 to 1 coachings
  • News and most relevant economic events in the market.
  • Free education tools for their clients, both for beginner traders and experienced traders, who offer training on various topics, such as Forex and other markets, trading strategies, trader psychology, behavior and price structure, market analysis methods, and others. Among the educational resources for ATFX clients, we have webinars that take place every week and face-to-face seminars that take place in different countries.

Customer support review

The website of ATFX is translated into several languages, including English and Spanish. It offers quite complete information about the company and its services, such as the investment instruments it offers, the trading conditions, the types of accounts, the trading platforms, and additional services, among other related aspects. The visitor can also find information about the company itself and the means of contact it offers both to customers and visitors.

Precisely in terms of the means of contact offered by ATFX for both its customers and visitors to its website and traders interested in its services, the main ones are the following: phone call, email, and live chat on the website on which operates 24 hours. The support team is operating from London and the team is well trained for the financial markets.

In addition, the broker organizes events and sponsorships with global charity actions. In the future, there are more offline events planned. So clients can get access to them an meet the support and management team.

Facts about the support:

  • International support in different languages
  • Multilanguage website
  • Professional educated support team
  • Phone, email, and chat support
International phone: Support email: Address: Active:
+44 203 957 7777 [email protected] 1st Floor, 32 Cornhill, London EC3V 3SG. United Kingdom Monday to Friday UK 9:00 a.m-5:00 p.m.

Conclusion of the review: ATFX is a leading Forex broker

ATFX is a regulated Forex Broker based in the United Kingdom, specifically in London. This broker allows trading with a wide variety of markets, including Forex, CFD, and raw materials. There are various types of accounts available for all sorts of clients, even for professionals.

ATFX provides competitive spreads and with no commissions, except for Edge accounts. All its functions are performed through MetaTrader 4, which supports all devices, both mobile and desktop. The multiple ranges of deposit and withdrawal options allow this particular broker to be used by a variety of clients, and you can always be certain of 24/5 customer service.

As for educational tools, the ATFX broker does not offer the most excellent variety of resources of this type compared to other brokers but regularly provides free webinars to all its clients. From our experience, the test results and conditions for traders are speaking for themselves. With ATFX you get clearly a good partner on your side.

Advantages of ATFX

  • Regulated by the famous FCA (UK)
  • Specialized for FX trading
  • Free demo account
  • Low spreads
  • Fast execution
  • High liquidity
  • Professional service
  • MetaTrader 4 platform
  • No hidden fees
  • 4 account types

ATFX is specialized for forex trading. You will experience fast execution and high liquidity (no slippage) for trading small and big positions. (5 / 5)

Is Your Forex Broker a Scam?

If you do an internet search on forex broker scams, the number of results is staggering. While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business.

When you’re looking to trade forex, it’s important to identify brokers who are reliable and viable, and to avoid the ones that are not. In order to sort out the strong brokers from the weak and the reputable ones from those with shady dealings, we must go through a series of steps before depositing a large amount of capital with a broker.

Trading is hard enough in itself, but when a broker implements practices that work against the trader, making a profit can be nearly impossible.

Key Takeaways

  • If your broker does not respond to you, it may be a red flag that he or she is not looking out for your best interests.
  • To make sure you’re not being duped by a shady broker, do your research, make sure there are no complaints, and read through all the fine print on documents.
  • Try opening a mini account with a small balance first, and make trades for a month before attempting a withdrawal.
  • If you see buy and sell trades for securities that don’t fit your objectives, your broker may be churning.
  • If you are stuck with a bad broker, review all your documents and discuss your course of action before taking more drastic measures.

Separating Forex Fact From Fiction

When researching a potential forex broker, traders must learn to separate fact from fiction. For instance, faced with all sorts of forums posts, articles, and disgruntled comments about a broker, we could assume that all traders fail and never make a profit. The traders that fail to make profits then post content online that blames the broker (or some other outside influence) for their own failed strategies.

One common complaint from traders is that a broker was intentionally trying to cause a loss in the form of statements such as, “As soon as I placed the trade, the direction of the market reversed” or “The broker stop hunted my positions,” and “I always had slippage on my orders, and never in my favor.” These types of experiences are common among traders and it is quite possible that the broker is not at fault.

Rookie Traders

It is also entirely possible that new forex traders fail to trade with a tested strategy or trading plan. Instead, they make trades based on psychology (e.g., if a trader feels the market has to move in one direction or the other) and there is essentially a 50% chance they will be correct.

When the rookie trader enters a position, they are often entering when their emotions are waning. Experienced traders are aware of these junior tendencies and step in, taking the trade the other way. This befuddles new traders and leaves them feeling that the market—or their brokers—are out to get them and take their individual profits. Most of the time, this is not the case. It is simply a failure by the trader to understand market dynamics.

Broker Failures

On occasion, losses are the broker’s fault. This can occur when a broker attempts to rack up trading commissions at the client’s expense. There have been reports of brokers arbitrarily moving quoted rates to trigger stop orders when other brokers’ rates have not moved to that price.

Luckily for traders, this type of situation is an outlier and not likely to occur. One must remember that trading is usually not a zero-sum game, and brokers primarily make commissions with increased trading volumes. Overall, it is in the best interest of brokers to have long-term clients who trade regularly and thus, sustain capital or make a profit.

Behavioral Trading

The slippage issue can often be attributed to behavioral economics. It is common practice for inexperienced traders to panic. They fear missing a move, so they hit their buy key, or they fear losing more and they hit the sell key.

In volatile exchange rate environments, the broker cannot ensure an order will be executed at the desired price. This results in sharp movements and slippage. The same is true for stop or limit orders. Some brokers guarantee stop and limit order fills, while others do not.

Even in more transparent markets, slippage happens, markets move, and we don’t always get the price we want.

Communication Is Key

Real problems can begin to develop when communication between a trader and a broker begins to break down. If a trader does not receive responses from their broker or the broker provides vague answers to a trader’s questions, these are common red flags that a broker may not be looking out for the client’s best interest.

Issues of this nature should be resolved and explained to the trader, and the broker should also be helpful and display good customer relations. One of the most detrimental issues that may arise between a broker and a trader is the trader’s inability to withdraw money from an account.

Broker Research Protects You

Protecting yourself from unscrupulous brokers in the first place is ideal. The following steps should help:

  • Do an online search for reviews of the broker. A generic internet search can provide insights into whether negative comments could just be a disgruntled trader or something more serious. A good supplement to this type of search is BrokerCheck from the Financial Industry Regulatory Authority (FINRA), which indicates whether there are outstanding legal actions against the broker. And if appropriate, gain a clearer understanding of the U.S. regulations for forex brokers.
  • Make sure there are no complaints about not being able to withdraw funds. If there are, contact the user if possible and ask them about their experience.
  • Read through all the fine print of the documents when opening an account. Incentives to open an account can often be used against the trader when attempting to withdraw funds. For instance, if a trader deposits $10,000 and gets a $2,000 bonus, and then the trader loses money and attempts to withdraw some remaining funds, the broker may say they cannot withdraw the bonus funds. Reading the fine print will help make sure you understand all contingencies in these types of instances.
  • If you are satisfied with your research on a particular broker, open a mini account or an account with a small amount of capital. Trade it for a month or more, and then attempt to make a withdrawal. If everything has gone well, it should be relatively safe to deposit more funds. If you have problems, attempt to discuss them with the broker. If that fails, move on and post a detailed account of your experience online so others can learn from your experience.

It should be pointed out that a broker’s size cannot be used to determine the level of risk involved. While larger brokers grow by providing a certain standard of service, the 2008-2009 financial crisis taught us that a big or popular firm isn’t always safe.

The Temptation to Churn

Brokers or planners who are paid commissions for buying and selling securities can sometimes succumb to the temptation to effect transactions simply for the purpose of generating a commission. Those who do this excessively can be found guilty of churning—a term coined by the Securities and Exchange Commission (SEC) that denotes when a broker places trades for a purpose other than to benefit the client. Those who are found guilty of this can face fines, reprimands, suspension, dismissal, disbarment, or even criminal sanctions in some cases.

SEC Defines Churning

The SEC defines churning in the following manner:

Churning occurs when a broker engages in excessive buying and selling of securities in a customer’s account chiefly to generate commissions that benefit the broker. For churning to occur, the broker must exercise control over the investment decisions in the customer’s account, such as through a formal written discretionary agreement. Frequent in-and-out purchases and sales of securities that don’t appear necessary to fulfill the customer’s investment goals may be evidence of churning. Churning is illegal and unethical. It can violate SEC Rule 15c1-7 and other securities laws.

The key to remember here is that the trades that are placed are not increasing your account value. If you have given your broker trading authority over your account, then the possibility of churning can only exist if they are trading your account heavily, and your balance either remains the same or decreases in value over time.

Of course, it is possible that your broker may be genuinely attempting to grow your assets, but you need to find out exactly what they are doing and why. If you are calling the shots and the broker is following your instructions, then that cannot be classified as churning.

Evaluate Your Trades

One of the clearest signs of churning can be when you see buy and sell trades for securities that don’t fit your investment objectives. For example, if your objective is to generate a current stable income, then you should not be seeing buy and sell trades on your statements for small-cap equity or technology stocks or funds.

Churning with derivatives such as put and call options can be even harder to spot, as these instruments can be used to accomplish a variety of objectives. But buying and selling puts and calls should, in most cases, only be happening if you have a high-risk tolerance. Selling calls and puts can generate current income as long as it is done prudently.

How Regulators Evaluate Churning

An arbitration panel will consider several factors when they conduct hearings to determine whether a broker has been churning an account. They will examine the trades that were placed in light of the client’s level of education, experience, and sophistication as well as the nature of the client’s relationship with the broker. They will also weigh the number of solicited versus unsolicited trades and the dollar amount of commissions that have been generated as compared to the client’s gains or losses as a result of these trades.

There are times when it may seem like your broker may be churning your account, but this may not necessarily be the case. If you have questions about this and feel uneasy about what your advisor is doing with your money, then don’t hesitate to consult a securities attorney or file a complaint on the SEC’s website.

Already Stuck With a Bad Broker?

Unfortunately, options are very limited at this stage. However, there are a few things you can do. First, read through all documents to make sure your broker is actually in the wrong. If you have missed something or failed to read the documents you signed, you may have to assume the blame.

Next, discuss the course of action you will take if the broker does not adequately answer your questions or provide a withdrawal. Steps may include posting comments online or reporting the broker to FINRA or the appropriate regulatory body in your country.

The Bottom Line

While traders may blame brokers for their losses, there are times when brokers really are at fault. A trader needs to be thorough and conduct research on a broker before opening an account and if the research turns up positive for the broker, then a small deposit should be made, followed by a few trades and then a withdrawal. If this goes well, then a larger deposit can be made.

However, if you are already in a problematic situation, you should verify that the broker is conducting illegal activity (such as churning), attempt to have your questions answered, and if all else fails, and/or report the person to the SEC, FINRA, or another regulatory body that could enforce action against them.

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