How brokers cheat
It's no secret that in the world of financial markets all too often you can fall for fraud and deception. In this article we will consider how brokers cheat on Forex, and what to expect from the so-called Forex kitchens.
In the previous article we have already figured out what forex kitchen companies are, and what A-Book and B-Book are, now more details about the methods of cheating by unscrupulous dealing centers.
Check forex broker scams list to avoid scam brokers. In general, relatively honest methods of money-laundering which are difficult to attract to criminal responsibility can be divided into several categories:
Dealing centers activities aimed at creating conditions for traders to get losses. Forex kitchens, using the B-Book, and various methods to complicate the traders' trading, with the purpose to "drain" the deposit as soon as possible, as all money lost by the trader goes to the dealing center's accounts.
For example, this is how the Dealing Center sees customer transactions. As we see, in one day, traders have lost 195,907.39 US dollars in total. Since in the Forex kitchen, the trader actually plays against the Dealing Center, this amount is successfully left with the company, and traders can only blame on the "unpredictability of the market".
How brokers cheat
The fact is that all activities of each client are under the scrutiny of the forex kitchen. Special dealer programs and analysts track trades to figure out how to "fight" you. If you're trading profitably, they may let you do it by "baiting" you in the beginning, and when you get a taste for it, feel confident and start making a bigger deposit, that's when interference may start. But in most cases they start to interfere right from the beginning. As a rule, brokerage companies resort to the following manipulations with the settings:
How brokers cheat: trade settings
1) Sleep Time - allows you to artificially create delays in order execution.
2) Guarantee Stop Loss - guarantees execution of trader set Stop Loss order. This option allows the trader to avoid significant losses of the deposit (including complete "loss"). As we understand this function often remains inactive.
3) Take percentage from spread - the function allows you to take the profit obtained from the trader's positive slippage (part or all of it). Interesting fact: Because of this option, the regulator FCA (UK) fined the broker FXCM in 2013 for about $ 17 million. However, the super profits from this feature continue to attract dishonest brokers.
4) Percentage from spread as broker profit - the option allows you to set a guaranteed minimum amount of broker's profit from each trader's trade. It can be achieved by any means: spread widening, slippage, delayed execution and so on. The function will not close trades of the trader, until the rate set by the broker is reached.
5) Don't take broker profit if negative slippage - as we can see from the name, this option blocks charging interest from negative slippage for the broker. It is often inactive, due to disadvantages for brokerage companies.
6) Limit trader profit from positive slippage - limits trader profit with positive slippage.
7) Individual settings of trading instruments - setting the minimum profit of the broker from each deal for each trading instrument.
These options can be set up individually for each trader. As a rule, the more profitable trader trades and the bigger his deposit, the more difficult it is. Traders with a large deposit or a high frequency of transactions attract the special attention of the Forex kitchen, because the dealer can make more money on the manipulations.
Accordingly, a beginning trader with a minimum deposit will hardly attract a broker's interest. The inexperienced trader is more likely to lose his deposit due to his own inexperience rather than due to the dealer's interference.
It should be noted that for such machinations it is impossible to attract Forex brokers not only in the CIS, but also in the West, where it would seem, the Themis is much stricter and more honest.
Most often, the information about what the dealing center has the right to do is spelled out in complicated legal language in the contract with the company, thus placing all responsibility on the client of such a company, which usually just clicks "Accept the License Agreement".
Change of quotes
Unscrupulous dealing centers sometimes allow themselves to change the quotes delivered to traders' terminals. If you compare price charts of trade instruments in the terminal of a Forex kitchen and other brokers or independent information agencies you will see the difference.
Forex kitchens themselves regulate the flow of quotes, thus forming their own candlestick patterns. For example, in the chart below we see a Japanese candle with a long shadow before a strong price movement. These candlesticks are called "hairpin". The dealing center generates this candle specifically to close the stop order (stop loss) of traders whose positions are open in the direction of a future price movement. Thus, a situation arises where in one moment the price jumps, closes all of them "in the negative", and then moves in the opposite direction, forcing traders to bite their elbows.
The spike in the forex kitchen
Thus, a trader who trades in the forex kitchen may not even see the real market price, trading exclusively "according to the rules" of the dealing center.
Many forex kitchens offer trading education. This is one of the main mechanisms of attracting people. What happens is as follows:
The DC spends enormous amounts of money on advertising and marketing.
Interested in easy money and beautiful life people come to the training, where they are promised quick and easy training.
In a few days or weeks "traders" are explained the minimum fundamentals of trading on the foreign exchange market, instilling in them confidence in their abilities.
After the training, "confident traders" are offered to put real money on the deposit and increase it two or three times in about a month.
Naive beginners bring their hard-earned finances to the dealing center, and, of course, lose them in a short period of time.
After that, a part of frustrated traders give up this - perilous business, having rooted that "Forex is a scam!", while the second, more venturesome part invests several times more, and then joins the first. And only few manage to understand that the problem is in the company and the lack of skills and knowledge in themselves but not in Forex in general. The latter as a rule leave the Forex kitchens, take a long time to study and become real traders trading in reliable brokerage companies.
But not all Forex training is a "scam". The difference between real trading courses and courses at the forex kitchen, is that real courses do not promise the golden mountains and the easy way.
Some forex kitchens offer paid forecasts and trading signals. Often it is also a fraud of brokers. As in the paragraph about training, you can distinguish "kitchen" forecasts and signals from a normal provider by exaggerated performance percentages. If paid trading signals promise you a profitability of more than 10% per month, then we advise you to avoid such proposals.
Some brokers provide PAMM-platforms, where anyone can invest in PAMM-accounts of managing traders. Forex kitchens can adjust the performance of managing traders to collect a larger amount of investment. Read more on how to choose a PAMM account in a separate article.
Withdrawal of funds
Very often Forex kitchens ignore clients' requests to withdraw funds or the funds disappear from the Forex broker's account altogether. More often than not managers justify it by temporary technical malfunction of the system or some difficulties in the company. As a rule such tendency is traced at the companies which can soon declare themselves bankrupt or simply close down. Since B-Book companies often work on the principle similar to the pyramid scheme, then as soon as the flow of new clients significantly reduces, the non-trading risk of company closing begins to grow.
What to do if a broker does not pay out the money? The best advice in this case would be not to carry the money to the forex broker at all initially, but if this still happens, it is better to put up with the loss of funds, and hope for, so-called, chargeback. Chargeback is a procedure of refund of client funds by the bank. If you credited your trading account to the brokerage company through the bank, then there is a chance to withdraw the payment. However, this procedure is rather complicated and there is no guarantee that your request for a refund will be satisfied.
Forex currencies have dealt a crushing blow to the reputation of the foreign exchange market, undermining the confidence of the population. Most of the population is convinced that "Forex is a scam", and this thesis is hard to destroy, given that today they continue their activities and even open new ones. We have considered how brokers cheat in most cases and the choice is yours. How to choose a forex broker you can read on a https://tradersunion.com/. Be vigilant, and don't let dishonest companies take your money.