Have you ever heard about the Masterforex or MFX broker case in 2006? The Masterforex case became controversial because there were accusations from a number of clients that the company was involved in the practice of broker fraud and regulatory violations.

Three years later, news emerged that a Crown Forex broker was accused of carrying out a Ponzi scheme that resulted in thousands of clients losing money. An investigation into this company revealed that client funds were used for personal gain by the owner.

In 2015-2017, the case of brokers FxUnited and IronFX again colored the dark world of forex trading. Clients of both companies admitted they were unable to withdraw their funds. The broker is also suspected of deliberately manipulating prices.

In the midst of situations and conditions that are prone to scams like this, it is important for all traders to always be vigilant by choosing a trusted forex broker. Distinguishing a scam broker from a reliable one is quite easy.

Scam brokers have distinctive characteristics, such as the following:

1. The regulation cannot be proven
2. Invalid broker identity
3. There is no track record
4. Promises profit without risk
5. There is always drama with withdrawals
6. Proven to have committed fraud
7. Have more negative reviews

See the description below for a more complete explanation.

1. Broker's Regulation Cannot Be Proven

Many traders fall victim to scam brokers because they hastily trust them based solely on displayed broker regulations without conducting proper verification. In reality, numerous forex brokers merely list regulations on their websites without actually being registered under them.

Hence, it's crucial to thoroughly validate the broker's regulations beforehand. One method to authenticate a broker's regulation is by verifying the broker's name or regulation number against the information registered on the regulatory body's website.

For instance, consider HF Markets, which asserts its regulation by the FCA with a specific registration number. To confirm this, visit the FCA's website, input "HF Markets" into the search field, and check the number and regulatory status.

If the number aligns and the regulatory status is active or regulated, it confirms HF Markets' regulation. Conversely, if the broker's regulation doesn't match or its status has expired, it signifies that the broker is not licensed.

2. Brokers Use Fake Identities

At first glance, it seems simple, but many traders are confused about the broker's identity. There are lots of scam brokers who often use names similar to the real broker's name.

For example, the real broker's name is FXGD, and the scam broker uses FXGB. This kind of broker is usually nicknamed a "copycat broker". Some are more clever, for example, FIRE.FX is a play on Fl(small L)RE.FX. Less careful traders will be fooled.

In addition to the name, scam brokers often use a PO Box as their official address because they do not have a physical office in operation. Some include their original addresses, but they can't be found when they search. To overcome this, you can do a cross-check on Google Maps first.

Also, be careful with the broker's website domain. Make sure the broker's website starts with "https://" and ends with ".com". If the domain looks unfamiliar and strange, the broker is most likely a scam. However, even this cannot be a complete guarantee.

In the case of the Alpari broker, there was a scammer who made his website domain end in ".com". Previously, Alpari's official website was alpari-forex.com, then alpari-cn.com and alpari-cr.com appeared.

As a precautionary measure, it is best to note down your broker's real domain address. Usually, the broker will provide an announcement several days in advance if they are going to change the domain name or address. If there is no notification, contact the broker's CS first to make sure.

See also:

How to Choose a Good Forex Broker?

3. No Track Record

A trusted broker must have a reliable track record. This track record includes the broker's operational history, compliance with financial regulations, and transparency in providing information to clients.

A well-regulated brokerage firm will be registered with a trusted financial authority and regularly audited to ensure they comply with set standards.

The existence of a strong track record is one of the main indicators that a broker can be trusted to provide fair and safe trading services to their clients.

See also:

Can I Trade Forex without a Broker?

4. Promises High Return Without Risk

In forex trading, there is never a 100% guarantee of profit. So, if a broker promises you high returns with the condition that you deposit a certain amount of money, it is clear that the broker wants to cheat.

Generally, fraudsters try to attract investors with promises of very high profits with no risk at all. They even use MLM schemes aggressively to attract victims.

Usually, scam brokers like this don't actually trade, but rather bet or gamble. Prospective clients are often asked to "entrust" capital to the broker first.

Clients are then asked to bet on the price of an asset; whether it will rise or fall within a certain time period (binary option). Practices like this only focus on predicting the direction of price movements, not buying or selling the asset itself.

See also:

How Much Money Do You Need to Trade with a Forex Broker?

5. Withdrawing Funds is Often Problematic

One characteristic of a scam broker is that it does not allow clients to withdraw their trading funds. Usually, this happens after a trader deposits money, makes a profit, and then wants to cash out the profit. The methods can vary, ranging from error reasons, the desired withdrawal option is not available, or even just disappears.

A trusted broker will help clients withdraw funds easily. The payment methods provided are certainly varied to facilitate the needs of each client. Starting from bank transfers (wire transfers), credit/debit cards, e-wallets, to cryptocurrency.

See also:

Forex Brokers with the Best Withdrawal Based on Real Testimonials

6. Cheating

There are many things that can be categorized as broker fraud, some of which are as follows:

• Excessive slippage: when a trader opens a position in the right direction, the broker's system slows down the execution until the price moves in a direction unfavorable to the trader.
  Slippage example: when you want to open a buy position on EUR/USD, you see the price at 1.2000. However, when the order is executed by the broker, the price has changed to 1.2010.
  
  
• Frequent requoting: The broker fails to execute orders at the requested price by the trader and offers a different price for execution.
  Requote example: When you want to buy EUR/USD at 1.1500, the broker requotes or cannot accept the buy order at that price. However, when the price has already risen 10 pips to 1.1510, the broker accepts your order.
  Or, when you've made a profit of 100 pips and want to close the position immediately because you anticipate a price drop. The broker then requotes and rejects the position closure when the floating profit reaches 100 pips, then finally closes it when the profit reaches 85 pips (with a 15-pip difference due to the requote).
  
  
• Spread unreasonably wide: Dishonest brokers can widen spreads, especially during periods of high volatility or important economic news, which ultimately increases traders' transaction costs. This is actually normal, but if it occurs too frequently, you should be wary.
  Unusual spread example: The EUR/USD spread is usually between 1-2 pips. When there's important news, the spread suddenly jumps to 5-10 pips or even more.
  
  
• Stop Loss Hunting: Brokers intentionally trigger stop losses or stop orders at certain levels that benefit themselves.
  Stop Loss hunting example: You open a buy position on EUR/USD at 1.3150 and set a stop loss 50 pips from the entry at 1.3100. When the price drops to 1.3105, your position is suddenly closed by the stop loss. Upon investigation, it turns out the spread widened at that time, reaching its stop loss target.
  
  
• Bonus traps: Brokers offer attractive bonuses with certain conditions, but once you make a profit, you're unable to withdraw it.
  Broker bonus trap example: A broker offers a 200% withdrawable bonus without specifying its terms and conditions. However, you can only get the bonus if you deposit $500 and trade a certain volume. Once the conditions are met, profits cannot be withdrawn.

Tragically, even regulated brokers can carry out these fraudulent actions. So, you should be careful and find out more about brokers in trader communities or reviews on the internet.

See also:

How to Choose Reliable Forex Brokers for Your Needs

7. Gets Lots of Negative Reviews

In today's digital era, there are many forex broker reviews that you can easily find on the internet. Some platforms that usually provide organic reviews are BabyPips, Trustpilot, Forex Peace Army, and Investopedia.

Browse the reviews of the broker you will choose. If there are more negative reviews such as difficult withdrawals, the broker manipulating prices, the trading platform often has errors, then you should be suspicious because it's most likely a scam broker.

Also, be cautious of fake broker reviews found on the internet. Signs of fake broker reviews may include:

• Overly positive or overly negative reviews without detailed explanations or experiences.
• Reviews that seem overly promotional or scripted.
• Multiple reviews posted in a short period from newly created accounts.
• Reviews that use generic language or contain grammatical errors.
• Suspiciously high ratings or rankings compared to other brokers.