HomeCryptoLooking for a crypto broker? Avoid these regulatory faux pas

Looking for a crypto broker? Avoid these regulatory faux pas


Article provided by Sole Trader

With the recent boom in crypto trading, many crypto novices are looking for a reliable and crypto forex broker. Online forex brokers have sprung up everywhere promising low fees and even guaranteed profits, yet many of them lack proper regulation at best. At worst they are crypto exchange scams who are looking to trick clients into investing in fraudulent schemes. 

According to Investopedia, the forex market has a daily volume of approximately $6.6 trillion, making it the world’s biggest financial market. The lack of regulation is often seen as an opportunity to trade with the trend whether it’s heading up or down, as well as an opportunity for easier access to trading. However, with a booming crypto industry there has been a slew of forex frauds and Ponzi schemes taking place in recent years, amplifying the need for reputable forex regulators. 

Not all unregulated brokers are dishonest, but when regulation is a choice and not a requirement in a market that is by nature decentralised, you can never fully guarantee that your money is safe. Simply put, ‘unregulated broker’ and ‘fraud’ are two words that will sadly always be linked. Without regulation, it is easy to steal a client’s money. Regulation cultivates trust between a broker and a client and distinguishes the real forex market from various forex scams and pyramid schemes. 

Thankfully, it is easy to check if a broker operates without a licence, or whether they have an offshore licence that doesn’t belong in the popular forex regulators. We don’t mean to scare you, there are a number of reputable, licensed brokers on the market that operate on the right side of law and those include well-known names such as Pepperstone, Plus500 and Currency.com.  

But let’s take a minute to have a look at what an unregulated broker looks like and what should never be acceptable from a regulatory perspective.  

1. Fraudsters do not mention a reputable regulator or licence

As most of FX trading is now done online, it’s easy for fraudsters to emulate a reputable broker by putting together a high-tech presence. No matter how attractive a website looks, you should always look for a mention of the licensing body on its main page. Notable regulators include FCA in the UK, CySEC in Cyprus, ASIC in Australia and CFTC in the United States. Regulated brokers will include a very visible reference to their licence.

While some brokers are regulated offshore, it is always better to choose a broker who is registered under a recognised jurisdiction. In most cases, this is the country’s financial market regulator. This way, if something goes wrong, the broker can be held accountable by a governing government authority in the client’s country.

Examples of forex brokers to be avoided according to Forex Fraud include OT Capital, EU Capital, Blue Trading, and ECN Capital. Common practices of unlicensed brokers are for example persistently asking for deposits, blocking withdrawals, charging fees that are not in the Terms and Conditions and claiming they are regulated when they aren’t. 

2. Forex and Crypto Ponzi Schemes

Forex Ponzi Schemes are one of the most common crypto scams that try to lure people into investing their money and promising high rates of return that sound too good to be true. Similar to a pyramid scheme, a Ponzi Scheme is an investing scam that generates returns for earlier investors by using money taken from new investors. As more people join in, more money becomes available to pay the alleged profits. Eventually, the scammer behind the scheme disappears with everyone’s money. 

Top characteristics of a Ponzi scheme include:

  • Unreasonable high returns that sound too good to be true
  • No mention of a regulatory framework and lack of detailed legal information
  • The scheme can only exist as the number of the investors multiplies
  • Fraudsters are in constant contact with clients with calls, emails and WhatsApp messages, trying to force them to make a deposit
  • When there is no longer an inflow of new investors the company suddenly dries up and investors’ funds disappear.

3.Robot trading software systems and signal sellers scams 

If anyone tells you they can help you earn money in your sleep, it is a red flag to say the least. This is common in the robot trading software systems fraud and forex robot scams.

The use of robot trading software is not always a scam of course, but generally speaking they exist in the grey zone of regulation. Using a robot has a practical effect on how you interact with the market and how regulators are able to see what you are doing, so they can evaluate if it’s in line with the rules or not. When fully automated trading robots have access to your account, they make trading decisions for you without your input. 

Stay away from brokers that promise passive income. Transparent brokers won’t encourage lazy trading, but want you to understand how the market works and help you be in control of your trading decisions. Most reputable brokers offer daily trading news, videos and webinars and other trading education resources and they try to avoid trouble with regulators.

Signal sellers are similar to robot trading scams. They usually are retail firms, pooled asset managers, managed account companies or individual systems that offer a system to tell you when to buy and sell currency pairs to make the most profit, and charge you a fee for the information. They claim they are able to identify the favourable times to make a trade, touting their long experience. While not all signal sellers are illegal (just look at popular copy trading platforms like eToro), signal-seller scams are widespread. They might charge a daily, weekly or monthly fee but the information that they offer is useless, and doesn’t help you make successful trades.

cryptocurrency broker

4. Unfair forex trading trading conditions

If you are a beginner in the forex and crypto trading market, it might be difficult to know whether the conditions offered are fair or not. However, there are some general rules that you could follow. For example, spreads and commissions should be low for traders to stand a chance in making a profit. Normal spreads are around 2-3 pips, but scammers would have spreads around 7-8 pips and they will find ways to manipulate bid/ask spreads. Even if a website promises low spreads, make sure to read the Terms and Conditions of the instruments you want to trade. You might be taken by surprise. 

5. Overpriced trading and education programmes

Reputable brokers often offer some sort of free investment advice or a free  Learn to Trade section on their websites. When a forex broker wants to sell you an expensive investment education that you can find for free on Youtube, start running for the hills. 

Bottom line/recap

A transparent and reliable broker will display their licence and regulator name like a badge of honour. In most cases this won’t be an offshore governing body you’ve never heard about. They will not promise or encourage fast and easy gains or any form of lazy trading that will make you rich in your sleep. Also, they will never inundate you with phone calls or WhatsApp messages and try to force you to make a deposit. Withdrawing your money shouldn’t give you heart palpitations, but it is an easy and straightforward process. Legitimate brokers offer an easily accessible list of their fees and spreads and have a list of thorough Terms and Conditions. 

*This article has been paid. The Cryptonomist didn’t write the article nor has tested the platform.

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