Forex Broker Scams

The small, beginner forex trader often finds it difficult to trade profitably through inexperience, or using flaky commercial systems, but some forex brokers make it even harder by helping themselves to your money, often staying within the letter of the law. This posting is to highlight some of their nefarious tricks.

Beware the bucket shops

A bucket shop does not put orders into the interbank forex market. They simply rely on most traders losing, so take the opposite position to your trade, but only on their own systems. This means that it is in the broker’s interest for you to lose. As well as making money from the spread, they also get to keep your losing trades. In my experience, many brokers simply see beginning traders as people to take money off.

Since the trade is only on their systems, the bucket broker can distort the market, or widen spreads (the difference between the bid and offer price). I have seen situations where market news came out and the position went massively into credit, and then they deliberately widened the bid offer spread from 3 pips to 35 pips, and also prevented the trade from being closed.

One other trick is to deliberately hit stops. If you put the stop on their system, they can move the quoted price to trigger the stop, then it will immediately move to where it previously was. This is a way that they rob the small trader.

There is no real way to work around a dishonest or unscrupulous broker, especially if you trade news driven markets. All you can do is to read the experiences of other people and be careful when selecting a broker.

Forex Day Trading - When To Stay Out Of The Markets

A lot of forex traders like to trade the shorter time frames such as the 1 and 5 minute charts, but it is very difficult to make consistent profits this way. This is because you have to contend with all the noise on these charts where the price just seems to drift aimlessly in a seemingly random fashion. Therefore there is one golden rule which you should stick to when trading these short time frames.

Basically you should always stay out of the markets when the ADX technical indicator is below 20. This indicator tells you whether or not a clear trend is in place and the general rule is that if it's below 20 then there is no trend.

So therefore you can instantly tell whether you should be trading the markets or not. Of course when the ADX is below 20 it's still worth keeping an eye on this particular currency pair because a rise above 20 could signal the start of a new trend, particularly if the directional movement indicators cross at the same time.

The ADX indicator is a very useful indicator because not only does it keep you out of flat trendless markets, but it can also help you exit your positions at the optimum point. The key here is to exit your position as soon as the ADX starts to turn down, particularly if it is above 40 or 50 for example, because this indicates that a trend is running out of momentum.

1 Minute And 5 Minute Charts - How Useful Are They?

1 minute and 5 minute charts appeal to so many traders because they can signal lots of short-term trades. Therefore they are ideally suited to traders who like to scalp the markets, but are they very profitable?

Well I've been trading forex for a good few years now and despite coming up with numerous short-term strategies that initially appeared profitable, ultimately they have all failed. This is why I still predominantly trade off 4 hour charts, using the daily charts for guidance.

I haven't once come across a consistently profitable system that uses 1 minute and/or 5 minute charts. I'm sure there are traders out there who are raking in lots of cash by taking multiple positions every day based on these charts, but I've yet to meet any of them.

The major problem with them is that so much of the data from them is just noise, and you get so many false signals during the average day that it is very difficult to make any real money. Even the very best technical indicators are often rendered meaningless when used over such a short timescale, and even if correct signals are given the subsequent move may only turn out to be just 5-10 points.

Plus you've got the spread to contend with because you will often need 3 or 4 points just to break even with a lot of forex brokers. Furthermore if you trade a lot of in-and-out positions, then it's usually only a matter of time before your broker will be on to you because most forex brokers don't like their customers making lots of very short-term trades.

I personally prefer my style of trading which involves 4 hour charts and generally will only consider adding a new system to my armoury if it uses 30 minute or 1 hour charts and above. This way technical indicators are generally a lot more dependable, and therefore profitable. Plus you can still be a daytrader if you so wish even using 1 hour charts You don't need to use the whipsawing 1 minute or 5 minute charts.

If you know of a trading system that is consistently profitable using these charts, I'd love to hear from you. In the meantime if you would like to read about my 4 hour trading strategy please subscribe to my newsletter above for instant access.

Forex Trading Tips - Brokers That You Need To Avoid

Just like there are brokers that you want, there are also brokers that you will want to stay away from. For example brokers who are prone to prematurely buying or selling near preset points (commonly referred to as sniping and hunting) are trifling things that are committed by brokers who only seek to increase profits.

Obviously, no broker would actually admit to doing this, but there are ways to know if a broker has committed this offense.

Unfortunately, the only way that you can really determine which brokers do this and which brokers don't is to talk to fellow traders. There is no actual list or organization that reports this kind of activity. The point here is that you have to talk to others in person or visit online discussion forums to find out who is an honest broker.

Strict Margin Rules

When you are trading with borrowed money, your broker should have a say in how much risk you are able to take. With this in mind, your broker can buy or sell at its discretion, which can be a really bad thing for you.

Let's just say that you have a margin account, and your position takes a headlong nosedive before it begins to rebound to all-time highs. Even if you have enough cash to cover it, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly. You talk to others in person or visit online discussion forums to find out who the honest brokers are.

Signing up for a FOREX account is a great deal like getting an equity account. The only major difference is that, for FOREX accounts, you are obligated to sign a margin agreement.

This agreement basically says that you are trading with borrowed money, and, because of this the brokerage firm has the right to interfere with your trades in order to protect its interests. Once you sign up, all you have to do is fund your account and you'll be ready to trade right away.