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Identify dubious CFD brokers

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Especially for beginners, one of the most important questions is whether a CFD broker is dubious or reputable. How to recognize a dubious CFD broker is sometimes not easy. However, there are important signs of a dubious CFD broker that you should know!

Trading of financial securities in the private sector enjoys great popularity. To provide access to the capital markets, numerous online brokers have positioned themselves and offer extensive CFD trading with a wide range of products. However, wherever capital is involved, the dubious providers are also found at some point. Recognizing these is difficult at first glance, but there are clear indications that quickly become apparent when looking closely.

However, a distinction must be made between subjective and objective perception as to whether a CFD broker is operating unseriously. Both the German Federal Financial Supervisory Authority (BaFin) and the European Securities and Markets Authority (ESMA) regularly publish warnings and prohibitions against corporations offering CFD trading for private individuals.

Presentation of the information

While reputable CFD brokers provide extensive and customer-oriented information about the company and CFD trading, this is different for a company designed to commit fraud. Often an imprint is missing or an address is listed which is a letterbox company. This means that a summonable address is missing in the event of a possible legal dispute.

People also like to jump on a media bandwagon, as we have with cryptocurrencies. Supposedly successful traders are presented who want to have earned a six-figure amount within one month. It also does not emerge whether CFD products are involved. It makes a difference whether a share can be traded physically or as a CFD.

Trade restrictions

A popular game played by rogue CFD brokers is the restriction of individual trading values. Let's first look at a CFD trading value. This is the price representation of a listed value. However, the CFD trader never trades the stock market value via a CFD broker, but only the CFD.

Here, a dubious broker can now decide whether and when to intervene in the course. As can now also be read in the relevant forums again and again, there are often trading restrictions when a course is in the money. Either no position closures are possible or no more prices are set. If a price is then set again, the position is suddenly in a noticeable loss and an attempted fraud may be assumed here.

Downtime and no accessibility

Since rogue CFD brokers only provide a browser-based trading platform, the trader must expect nasty surprises when CFD trading. Suddenly, it is no longer possible to log into the trading account or the platform is completely unavailable. With open positions, for example, the price freezes, closing is not possible and a short time later with the first price setting, the trader is in the loss.

Positions that are in profit are then often impossible to close. Until mid-2018, this was a popular trick among binary options providers. Therefore, it was also imperative that ESMA banned the trading of these financial instruments for Europe. In this case, the financial regulator also assessed such an approach as attempted fraud.

Dealing with the customer

When looking for a suitable broker, interested parties first look closely at what offers it has on its website, how to register and how high the minimum deposit for the trading account must be. Of course, dubious CFD brokers know this as well. Therefore, they usually advertise with a low minimum deposit and at the same time refer to high profits. Often this is done with alleged comments of the customers. So everything is done to give the prospective customer a good feeling. Of course, reference is also made to the fact that the broker is known from radio and television.

When the customer registers with the broker and makes the initial deposit, the broker calls a short time later. In this case, the broker tries to persuade the customer to make a higher deposit, because the customer wants to make the maximum profit. However, this is only possible with a significantly higher capitalization. In order to make the impression serious, stock exchange terms are thrown around. Through the queried customer status during registration, the broker knows who he has on the phone.

If the customer complies with the request, there is usually radio silence from then on. If the customer requests a refund or a partial payment, nothing happens in almost all cases. There is no response to e-mails, and no one can be reached by phone either.

Another method, which is of course to be considered fraud, the customer trades CFDs successfully from his point of view. Previously, he has received a call with a surefire tip which CFD to trade. The trader trades the discussed CFD. What he does not know, here the broker helps in the background, in which he manipulates the prices and the customer makes more and more profit with the CFD trading. It follows again a call of the broker. This time another CFD is to be traded. In this case, greed is exploited, because now the trader wants to know. He bets a large part of his capital on a CFD. It goes wrong, of course, and the broker is not even liable in this case, although it was ultimately attempted fraud.

Company data should be findable

Another indication of a dubious CFD broker concerns the company data. Here especially the points:

  • Seat of the company
  • Regulator
  • Accessibility of the company (customer support)

Since non-serious brokers stay in the fairway of successful and reputable companies, they cannot be quickly identified based on the published data. Thus, the general assumption is that a broker based in Cyprus is not reputable. But this is not true.

How to recognize dubious CFD brokers?

Of course, dubious CFD brokers hide behind a nicely painted facade. At first glance, everything looks good and the tradable CFDs do not show any abnormalities. However, as already stated here, there are clear signals of an attempted fraud.

In addition, the following signs of dubious CFD brokers:

  • missing imprint
  • lack of regulatory information
  • CFDs can only be traded on a browser-based platform
  • No risk warnings
  • Trade with very high leverage over 1:100
  • Warnings issued by BaFin
  • no reaction in case of a requested payment of money
  • exaggerated advertising with alleged super profits
  • initial phone calls with tips from the broker

Those who want to start trading CFDs should carefully choose their future broker. There are enough online brokers to choose from, which have been operating for many years. Therefore, it is recommended to visit relevant and neutral forums, where, among other things, CFD brokers are discussed.

How to find a reputable CFD broker?

Finding a reputable CFD broker is not as difficult as you might think at first. However, a thorough research is necessary to prevent any possible fraud.

Here you can find some features of reputable CFD brokers:

  • Designated state regulation
  • Limited leverage (maximum 1:30 in standard account)
  • Free demo account
  • Training materials
  • Easily accessible customer service
  • Good public ratings
  • Clearly identified risk warnings

In our CFD broker comparison, we have listed the most reputable and serious CFD brokers for you. Form your opinion about the CFD brokers and test with a free demo account.