You should always be on the lookout for anything proving that your broker is somehow working against you, and not for you. In the end, they are providing a service for which you are paying.
Still, there are certain brokers who choose to operate in a way that is legal, but that should not be tolerated by traders. The last thing you want is to put your money in the hands of people seeking your demise.
1-Widen Spreads To Protect Themselves
During times of high volatility in the markets, brokers have to protect themselves from traders who are over utilizing leverage and are putting themselves in a situation where they owe money to their broker.
This will effectively close the trades of traders with tight stop losses, or make them pay an unreasonable amount of money for a spread that they did not notice was so high.
This can make certain big movements untradeable since the risk to reward ratio becomes much more disadvantageous.
To prevent this from affecting you too much, you should start by analyzing how your broker modifies their spread depending on the volatility. You should also always verify how large the spread is before placing a trade.
2-Use Shady Promotion Methods
Biased reviews
When searching for a suitable broker that will satisfy your need as a trader or an investor, you will most likely make a Google search along the lines of “Best broker for Forex trading”, or “Top 5 brokers for daytraders”.
It is very likely that the first websites you will be recommended are sites that are entirely dedicated to rating brokers, and who will gladly provide you with an affiliate link for their “top broker pick of the month”.
You should not be fooled by these websites. Chances are their list is not organic. They only want to profit from beginners in search of a “high rated” broker.
How are they profiting from visitors? Either by receiving money directly from the bank or broker in exchange of putting them high up on the list, or by giving the rating website a highly advantageous referral link, meaning that the commissions they earn are a good enough reason to be dishonest about their “appreciation” for the broker.
To find organic reviews, you should look for public forums, such as Reddit, to find actual people who opened accounts with the brokers and who can tell you about their experience.
Shady Bonuses
To lure people with a small budget who want to start trading, it is frequent that you will come across some sort of “bonus” for signing up. It might be something along the lines of: “Deposit $500 and receive a $250 bonus”.
So here you are, thinking how you could achieve returns of 50% simply by signing up to this broker. Seems like a pretty good deal! Only problem is, there is always some fine print on the signup page. There is always some sort of condition before you can finally get your hands on the $250. Maybe you have to be an active trader for a certain amount of time, maybe this $250 is a fee credit, maybe the money cannot be withdrawn from the account and can only be used to trade.
Bottom line is, you should never judge a broker by how attractive some of their promotion might be. You should analyze factors that will affect your trades, such as the speed at which your trades are filled, the customer support from your broker, and the reliability of their services.
