There are hundreds, if not thousands of forex brokers offering services to retail clients in Sadly, not all of these brokers operate in an ethical manner and many actually go out of their way to cheat traders. Forex bonuses are a promotional tool used to entice new traders into the forex market.
There are two types of bonuses: No deposit bonuses are an extremely effective way of recruiting new traders. This is because most traders lose money. Brokers offer new clients a no deposit bonus, knowing that most of them will lose anyway.
The idea here, similar to a drug dealer offering you your first hit for free, is to get the client hooked. Even if some clients do experience a run of beginners luck and manage to withdraw some profits, they will likely follow up with a much larger deposit which they end up losing. Deposit bonuses on the other hand target both brand new traders and traders near the start of the journey. Secondly, having these trading credits on your account allows you take much larger positions. Both deposit and no deposit bonuses usually have a whole range of tricky terms and conditions attached to them.
Some brokers require you to trade a certain number of lots before you can withdraw the bonus encouraging overtrading , others will never let you withdraw the bonus and some brokers will cancel your bonus if you withdraw any money from your account. Australian brokers like Vantage FX all have to question new clients and ensure they have a sufficient level of understanding and experience with margin trading before offering them account.
Less scrupulous brokers in lightly regulated jurisdictions have no such requirement and offer high leverage margin trading accounts to everyone and anyone. Most new forex traders lose eventually anyway, offering them Some brokers will deliberately quote their traders a slow price feed, so they know in advance what is going to occur in the market.
The sort of manipulation mentioned above are quite common amongst unscrupulous brokers, but some of the worst brokers will also manipulate their price feeds and cause their clients stops to get triggered. This is especially likely to occur during volatile times like NFPs, when the broker can use real volatility to cover their tracks. There are numerous horror stories regarding this all over the internet, where people have deposited quite large sums of money, made decent returns and then the broker has refused to process their withdrawals.
Scam brokers like this nearly always operate in jurisdictions with little to no regulation, where the client has no recourse.
As soon as you deposit with a broker like this, your money is gone — they never intended on paying you out in the first place. Brokers behaving in this manner will often accuse the trader of arbitrage or scalping and direct them to a clause in the terms and conditions prohibiting this sort of trading. This is why it is extremely important to trade with a true ECN broker like Vantage FX that is regulated in Australia and allows clients to trade whatever strategy they choose.
Brokers that employ the above tactics are always market-makers — they have a vested interest in their clients losing as they profit off client losses. ECN brokers on the other hand, simply operate as a middleman between their clients and the real forex market.
In fact, if a client loses their money and stops trading, the ECN broker has lost a client and is no longer profiting from commission charges. This is why ECN brokers are becoming extremely popular and why the market-maker model is on the way out.
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