What freaking country do you live in that does not have proper business laws?
In most civil countries, just to give you the idiocy of your statement, prices are publicly quoted in shops. And the shop has no right to either deny a specific customer that price, or to actually say "ths is the price for everyon except PlusMinus, who is an idiot and pays double", and there are in fact laws agains that. So, the shop example you gave is - sorry - idiotic. A shop singling out customers and giving them arbitrary bad prices is in for all kinds of bad accusations, and "fraud" is the most harmless one from a public relation point of view. Racism is something to come in VERY fast in that scenario ("I am black, I pay more"). A shop may not have to give you the same rebate, but it has to provide the same public quote. At leat outside of arabian basaars where everything is negotiated.
And you may be surprised to see how easy that is to proove.
Let's say I have a big account and suspect my broker from paying unfair - then I simply get access to another account (small, opened by a friend) and get the quotes from both logins for some time. Here we go. You wil lbe surprised how government officials may like that. The government has many people working on general fraud. Unregulated is not "out of the normal laws".
Yes, spot market brokers may not be audited by financial instituations, but they are contract partners and businesses. Fraud is a criminal offense, and selecting out a specific customer and giving him significantly and regularly worse prices than other customers is not fullfilling your contractual duties in good faith, and this may totally invalidate any losses of the customer. Pretty much every country in the planet has generic laws against fraud. And, interesting enough, the attorney general will start investigating if you can provide enough initial evidence to make it more than hearsay (such as quotes from two accounts that are different - enough to start an investigation).
This is the same with market makers. A market maker may publish different quotes given on different volume, but if the customer name plays a significant role, then this is fraud. That simple. if I manage to get an investigation started, the rest is simple. And will NOT bode well - you may find your spot FX broker suddenly having to repay you losses and missed profits.
I am not sure where all that "unregulated" crap comes from - because, the definition of fraud, and the obligation to fullfill a contract in a best effort are pretty much ingrained everywhere. All that regulation does is put in very clear guidelines, but it is not that without those "obvious direct fraud" is not criminal.
That said, like always, they have a lot better ways to screw their custoemrs, as a group, without comitting fraud:
* If the bucket has a significant exposure and stops tight, they can automatically run teh stops. Note that this is "the bucket", not "a customer". "fair" to all customers. All they need is a technical reason those days, such as volatility rising. OR working together with a market maker - hard to proove. But it will hit ALL customers.
* They can decide whether to hedge or not. Most likely "worse quotes" for a cusomter are because statistically he makes money, so the spot FX markset maker 100% hedges him and does not want risk. Small accounts that also statistically loose... get fast narrow quotes and are not really hedged (because they loose anyway), but the spot broker wont risk that for winning larget accounts. THis is not 100 pips - it may simply be waiting for a quote from the market maker, or giving the last quote recorded and not trading with the market maker.
* Spot FX brokers only need to hedge net positions (i.e. if most customers are long, you go long the long - the short volume) and take the complete spread as direct profit. This probably is significant.
In all those cases, this is "fair", mostly because the broker will be able to proove it is based on a specific automated approach that ensures fair market, and the "worse spreads" the large winning account gets are from the ecn network. And yes, they will have the ability to proove that - OR they are in in a lot of pain. You may not realize that, but even without "regulation" business are supposed to keep certain paperwork (i.e. business related documentation) by law. And if you are in the business of forwarding quotes, then - seriously - you better have your business documents (quote streams) in order. Nothing "finance regulated" here, pretty much basic business requirements. Spot FX brokers are not "black maket bookies".
Btw., spot FX brokers ARE "audited". I am not sure where you get the idea from they are not audited. All kinds of people look over their record, among them, for example, the tax office. They better have complete documentation of their financial transactions to properly calculate their profit and loss
That, again, is pretty basic. If you read up a little you will find any business pretty much is in the risk of, for example, a tax audit.I am not a fan of spot FX brokers myself - but any argument about them singling out customers and giving them significantly worse spreads (100 pips) because they win too much is pretty much something people need to see a psychologist for. Especially when the counter-arguments are as thin as yours are with the shop example.
That said, again, I am a fan of the CME futures - nice because of watertight regulations from beginning to the end, so a lot of possible issues simply wont arise, especially fairness of fills (order of fills etc.) and proper procedures to dispute prices. It also is a lot harder to "get funny quotes" to run stops. But assuming that a bucket shop will do outright fraud to screw ONE SPECIFIC customer is not passing occams razor - it simply ios too much work for too little profit, while they basically can milk the customers without such fraud.
