Spotting a dubious broker: 12 red flags and how to verify a licence

1. 1Find the legal entity. Not the brand. The footer, or the opening paragraph of the client agreement, should name a company with a legal form, a registered office and usually a licence number. If all of that is absent, you can stop here.
2. 2Search the named regulator's register - through your own search, never through a link the firm sent you.
3. 3Match the number and the name. The FCA is explicit about this: the firm reference number and the contact details you were given must match the register entry (FCA).
4. 4Take the contact details from the register, not the website. If there is any doubt, ring the number in the register and ask whether the domain you are dealing with belongs to that firm.
5. 5Check the warning lists. The FCA Warning List, the FINMA warning list, BaFin's notices on unauthorised business. FINMA states plainly that its warning list is not exhaustive and is not updated daily, so an absent entry proves nothing.
6. 6Read the permitted activities. A registration as a payment institution, or a crypto-asset registration, is not permission to provide investment services.

Keep the order in mind: entity first, then register, then permitted activities. Searching the brand name alone often returns a hit belonging to a different company in the same group.

The most common pattern is not outright forgery, it is redirection. A group runs an FCA-authorised company in London, a CySEC-authorised one in Limassol and a third in the Seychelles or Vanuatu. The website displays all three licences. At account opening, retail clients from the EEA are routinely onboarded to the offshore company, because that is where higher leverage is permitted and the margin on the business is wider.

Every statement on the site can be literally true. But only the entity named in your client agreement governs you: its regulator, its leverage limits, its compensation scheme - or none.

Leverage is not the benefit it is sold as. When ESMA introduced its 2018 measures it put the share of loss-making retail accounts at 74-89%, with average losses between EUR 1,600 and EUR 29,000 depending on the country (ESMA). Those figures came predominantly from regulated firms operating under leverage caps.

1. 1They contacted you first. A phone call, a WhatsApp message, a Telegram group, a social ad followed by an "account manager". Legitimate brokers acquire clients through comparison and search, not cold outreach.
2. 2A return with a number attached. "8% a month", "capital protected". No regulated broker may promise a trading outcome, because it does not control one.
3. 3No company name, no licence number, no address. A brand with no legal form behind it is a disqualifier, not a cosmetic flaw.
4. 4The licence number does not match the register entry. This is the signature of a clone firm: it copies the name, number and design of a real institution and changes only the domain and the bank details.
5. 5Tier-1 badges belonging to a sister company. See above - check which entity your contract actually names.
6. 6Someone wants to trade for you, or wants access to your machine. Discretionary management is a separate regulated activity. A request to install AnyDesk or TeamViewer in this context is, in practice, always an attack.
7. 7A bonus with turnover conditions. The arithmetic is below. The condition normally locks not just the bonus but your own deposit as well.
8. 8Urgency. Deadlines, "the window closes today", an analyst who stays on the phone through a market move. Pressure is a sales technique, not a market condition.
9. 9Deposit rails outside the banking system. Transfers to a private individual, to a payment agent in a third country, or into a crypto wallet. That is the point at which every chargeback route disappears.
10. 10No risk warning and no loss percentage. CFD providers in the EEA and UK must publish the share of retail accounts that lose money. If that line is missing, the firm is not subject to that rule - which means it is not subject to the others either.
11. 11Money demanded before money comes out. A "tax", a "release fee", a "compliance check", a "conversion charge" ahead of a withdrawal. Legitimate fees are deducted from the payment, not collected in advance.
12. 12A recovery firm appears after the loss. Those callers have your details from the same source as the original approach. This is stage two, not rescue.

Bonus terms are written in different ways, but the arithmetic always has the same shape. Suppose a firm offers a EUR 500 bonus with a condition that one standard lot must be traded per EUR 5 of bonus. That is 100 standard lots, or roughly EUR 10 million of notional volume.

At a round-trip cost of one pip on EUR/USD, a standard lot costs about USD 10. One hundred lots therefore cost around USD 1,000 in trading costs to unlock a EUR 500 bonus, before the market does anything at all. The firm hands over 500 and collects 1,000. And while the condition is outstanding, your own deposit is usually not withdrawable either.

That is not fraud, it is a design. But it explains why bonus offers to retail clients have been prohibited in several jurisdictions. If you are sitting in the EU or the UK and a bonus is offered to you anyway, that fact alone tells you something about which entity you are about to be onboarded to.

"From" describes the best tick ever recorded, not your average fill. Take a trader doing 40 standard lots a month on EUR/USD.

• Advertised: "from 0.0 pips", with no commission stated. The implication is close to nothing.
• A realistic time-weighted average of 1.3 pips: 40 lots times 1.3 pips times USD 10 per pip = USD 520 a month, or about USD 6,240 a year.
• A transparent raw-spread account averaging 0.2 pips with USD 3.50 commission per side: 40 times (2 + 7) = USD 360 a month.

The cheaper model here is the one with the visible commission. The real test is not the headline number but whether the firm publishes average spreads with a stated measurement window. A firm that does not has a reason.

The best practical test available is a cheap one. Deposit the minimum, wait two or three days, trade little or nothing, then request a partial withdrawal back to the same account you funded from.

You risk perhaps EUR 250 and a few fees. In return you learn whether the withdrawal path exists, how long it takes, whether documents are suddenly demanded that were not needed on the way in, and whether somebody rings you to talk you out of it. That last one is the most informative signal in the entire exercise.

Compare the cost of that test to the alternative: funding with EUR 10,000 and discovering at the first withdrawal attempt that the path does not exist.

Recovery-service approaches follow a fixed pattern. After a loss of, say, EUR 12,000, a "law firm" or a "chargeback specialist" makes contact. What follows, in sequence: a 20% success fee up front, so EUR 2,400; a "cross-border transaction tax" of EUR 1,800; an "escrow release" of EUR 900. Total: EUR 5,100 of additional loss, with nothing recovered.

The test is straightforward. Genuine recovery runs through your bank, your card issuer, the regulator or a court - bodies you contact yourself, and which do not cold-call you. Nobody with a real prospect of success needs a payment in advance to cover a tax.

1. 1Pull the entity name from the contract and look it up in the register - via your own search, never a link you were sent.
2. 2Read the permitted activities, not just the authorisation status. A payment permission is not an investment permission.
3. 3Search the FCA, FINMA and BaFin warning lists, knowing they are incomplete by design.
4. 4Read the bonus, turnover and withdrawal clauses before depositing. A condition that locks your own money is not a gift.
5. 5Run the withdrawal test at the minimum deposit before funding the account properly.
6. 6End any unsolicited contact offering to trade, to recover funds, or to access your account - however professional it sounds.
7. 7If something has gone wrong, tell your bank and the regulator immediately. Card chargebacks are time-limited, and every week that passes removes options.

This article is information, not investment advice.