How to Avoid Bogus Best FX Rate Claims When Trading Currencies

The FX sector is flooded with claims by FX providers of having the “best exchange rates”. A lot of these claims are complete hogwash, but there is only one way to verify what is real and what is not.To protect yourself, the only reliable method is to abandon trading through an FX provider that claims to use live rates but does not display this information to you transparently. If you trade currencies through a bank or broker, chances are that they assure you of “the best rate” with them.The only way to protect yourself is by having access to the live mid-market rate.How Bank of New York Mellon defrauded their customers over FX ratesBank of New York Mellon (BNY-Mellon) are in the news again for the wrong reasons. BNY-Mellon have now been ordered to pay a fine of $714 million for defrauding their customers.The bank informed customers that they would obtain for them “the best” exchange rate available from the trading day. However, they gave their customers the worst, or near to worst rates, and kept the difference for themselves, according to the prosecutor for the case, the US attorney, Preet Bharara.The reason why the fraud came to light was due to a whistle-blower revealing the malpractice, which begs the question, how many more cases of fraud go on in the global foreign exchange market that are not reported? Are you safe with your bank or brokers.Co-prosecuting attorney, Eric Schneiderman, estimated that BNY-Mellon’s earnings from deceiving clients over the promulgated “best FX rates” over a 10-year period amount to a whopping $2 billion - a simple yet incredibly effective way of making large profits at the customer’s expense – money that goes straight to the pockets of dishonest banks and brokers.How to protect yourself against the dubious best FX rate claimsIn order to protect yourself, first you have to know exactly how it is possible to fall victim to FX rate fraud and the best FX rate claims.If however, they claim to use live rates, they often do not reveal the real rates transparently. This allows for the amendment of the rate when the FX market moves against the client. Crucially it also gives the bank – BNY-Mellon in this case – the choice of failing to inform the client once there is an exchange rate movement that would prove beneficial for the client.This way, the bank can protect themselves from exchange rate drops but profit from positive differences by failing to pass on the positive difference to the client.Even very sophisticated clients, seasoned in foreign exchange transactions, seem not to check the rates BNY-Mellon quoted them against the benchmark live rates.If there is no whistle-blower, it is difficult for the fraud to be exposed.With an FX provider that divulges this information to clients, you know exactly what the real mid-market exchange rates are at any time, and can cross-check the rate you receive with the live rate. The vast majority of FX market makers – banks and brokers – do not offer clients live rates, as it is through the exchange rate, with the levy of a spread included in the quote, where profit is maximised.If the customer is not aware of the actual live market rate, they do not know how much they are actually being charged.For this reason, it is of fundamental importance to ensure you have access to the live mid-market rate or there will always remain the risk of falling victim to manipulated rates or deception.