What are the scams of retail brokers?
Brokers can steal money from traders. There are a lot of scams involving brokers. However, only a few cases of getting scammed by the broker are reported. The scam can result in a loss of investment. It is reported as a violation of securities laws. If a broker scams the trader, the broker is working against the FINRA rules and standards.
Retail Brokers
Retail brokers provide a platform where traders can perform trading. Most brokers do not charge any commission fees, whereas some do charge a commission fee. A retail broker who does not charge any commission fees is usually considered a scam. They attract customers through investment schemes and try to convince customers in many ways. Their slogan is “the best broker to gain profit in Forex trading.” No doubt, it is a lie. So be aware of this type of broker as much as possible.
Retail brokers make their markets scam the traders. That is why retail brokers are also called market makers.
Example:
An example of a retail broker is if the value of a spread lies between 1.345 and 1.398, then retail brokers sell this spread to traders at 1.396 and buy it at 1.347. This means that the customer will receive only two pips in profit, with the remaining value retained by the broker. In this way, the traders get scammed by the retail broker.
How can they cheat you?
The above example was a price-fixing example. But brokers also scam customers without getting informed. For example, if you are doing a trade-in EUR/USD currency and the currency’s value is 1.789, as Forex is a volatile market, the currency’s value goes down. But the broker scams the customer without informing the trader. And offer a lower price than the actual price. As a result, you may suffer a significant loss.
Pyramid schemes
Another way to cheat traders is by using pyramid schemes. It is the most well-known scam scheme, not only in Forex but also in other markets. Essentially, it is about the firm misrepresenting itself as a broker while in reality collecting deposits from traders, frequently without even seeming to be active in the interbank market itself.
They keep making bogus promises and chanting slogans. This form of fraud is becoming less popular than others in today’s society. SA forex trading use this scheme
Fly-by-night brokers
This type of scam can result in a huge loss to the trader. They create their sites. And persuade people to invest money. When people invest money, they collect it and close their site.
Final words
The brokers did not scam the traders, but they may be a person or a group of people assuming the role of brokers. They are experts on the internet, so they spread wrong information to attract customers.
These brokers usually don’t have a license, and a governing body might not regulate them. Beginners usually don’t have enough knowledge. That is why they can easily be trapped. As a result, it is critical to learn the Forex market fundamentals.
