With whom are you trading?
Is the forex broker a reputable business? Can you rely on it?
To trade forex, you must first open a trading account with a supplier of online foreign exchange (FX) trading or contract for difference (CFD) trading services, also known as retail “forex brokers” or “CFD providers.”
When you open a trading account with this company, you must deposit funds into the account in order to trade.
Are you certain you can rely on this broker?
Unfortunately, not all brokers are trustworthy and honest.
The retail forex trading business suffers from a lack of transparency and opaque regulatory systems with insufficient control.
The forex market is less regulated than other financial markets because to its decentralized and worldwide structure, making it more vulnerable to fraud. And, since the early 2000s, with the emergence of internet-based trading platforms, forex trading has become even more accessible and popular among retail traders all over the world.
This influx of new traders (“fresh meat”) gives greater opportunity for dodgy brokers to engage in questionable behavior such as fraudulent schemes, order manipulation, refusal to pay out for victories, or blocking account holders from withdrawing funds.
Many forex brokers were formerly unregulated, which means they did not operate under the oversight of a governing organization whose duty is to safeguard traders from being duped. As a result, if you are duped, you have no legal redress.
Your money has disappeared.
Fast forward to present, and while the retail forex industry has gradually gotten more regulated, dodgy brokers that should not be in business still exist.
As a result, the most crucial initial step is to confirm the validity of the forex broker you select.
When trying to trade forex, it’s critical to find reliable brokers and avoid those who are not.
You don’t want to become one of the unfortunate individuals who fall victim to a currency scam.
Before depositing a substantial sum of money with a broker, do your study to distinguish trustworthy brokers from dishonest ones.
As a beginner trader, your first essential decision will be which forex broker to use.
Because you’re going to be giving this company money.
So the first thing you must ensure, especially BEFORE you make your first deal, is that after you deposit funds to the broker… if you’ll be able to withdraw those funds as well.
You may believe that once your funds are in your trading account, you would be able to trade with them and then withdraw them anytime you want to cash out your earnings.
But don’t just take this for granted! VERIFY! Never make assumptions; always double-check. It doesn’t matter if you’re the best trader in the world if your broker disappears with your money.
Is it a Real Company?
Is the forex broker a legitimate business?
Don’t get taken in by a well-designed website.
Forex Broker Who Is Legally Incorporated
Check to see if the website is actually owned by a properly incorporated firm.
Here are several indicators that they are a legitimate business:
- What is its formal business name?
- Where is it incorporated and registered to do business?
- How long has it been in business?
- Can you find anything on Google about the company?
- Have there been any recent press releases or articles about the company?
Where is it Located?
Is there a physical address for the company?
Don’t be misled by their website’s listed address. Check to see whether there is a legitimate office behind that location.
Using Google Maps to see if the office is real is a quick method to find out.
Enter the address into Google Maps to see what comes up.
Who Runs the Company?
Do you know who runs the business? Is it, on the other hand, a “ghost corporation” with no active employees?
Who are the company’s founders?
A principal is typically someone who has a major ownership position in a firm or who has a formal title and authority over the company’s operations.
Principals could include the founder (or co-founders), President, CEO, COO, CFO, other C-level executives, or anyone who owns 10% or more of the company.
Be wary of “ownership-opaque” companies, which do not disclose their genuine owners and/or company officers.
This lack of openness could be attributed to the fact that it is a criminal organization whose members prefer to stay unidentified.
If you’re entrusting a company with your money, you should get to know the individuals who run it.
If something goes wrong, you’ll know who to blame.
Can You Contact the Company?
Is there more than one way to contact the company?
You want to ensure that your broker is available when you have a question or an issue.
Is there a phone number?
Is there an email address?
Is there a live online chat?
What are the customer service hours?
It is insufficient to view all three on their website. The fact that there appear to be various ways to contact the broker does not imply that this is the case. Check that they all work and aren’t just for show.
Please dial the number. Does anyone answer the phone quickly?
Please send an email. How long does it take to get a response? (Automatic responses do not count.)
Begin an online chat. Is it effective? Or are you simply requested to fill out a form and submit a message?
If the online chat works, are you speaking with a chatbot or a real person?
When are their customer service hours? Is their customer service available 24 hours a day, five days a week?
You may also try their customer service by creating a demo account. Send them a query using their support tool once you’ve logged in to their demo trading platform.
They should be responsive because you are a possible new customer who may open a live account. If not, it should make you worry how their customer service will be after you’re a customer.
They should be responsive because you are a possible new customer who may open a live account. If not, it should make you worry how their customer service will be after you’re a customer. A trustworthy broker should have a dedicated support team that can respond to your inquiries. Phone access or live online chat is required in a live trading situation because email responses can take days.
Finally, you want to ensure that the broker will be there for YOU when you need them.
Is Your Money Safe?
Do not open a live or “real money” account unless you understand how your funds will be handled.
The following questions must be asked:
In which bank do you keep customer funds?
Customer funds are kept separate from the company’s bank account.
A credible bank should be used by the forex broker. Inquire as to who they use. Would you put your money in the hands of an unknown bank?
Check that a forex broker uses separate accounts before depositing any funds.
A segregated account is a dedicated bank account in which all money from consumers is kept fully separate from corporate cash.
This means that your funds are kept completely separate from the broker’s funds.
The primary purpose of segregated accounts is to keep the broker from using YOUR cash outside of your trading account.
Customers’ funds can be used for operating expenditures if a forex broker does not segregate accounts. Also, how about an exotic sports car (or two) for the CEO?
Or it might simply spend all deposited monies on bitcoin and then vanish. Shady brokers in the past have utilized their customers’ money for their own reasons, placing it at undue danger.
You don’t want your broker to misappropriate your funds. A separate account safeguards your funds against dishonest and unscrupulous broker behavior. It also ensures that customer monies are quickly recognized if a broker goes bankrupt. In the event that the forex broker goes bankrupt, your funds will be unaffected.
Regulations in several countries specify that segregated accounts cannot be used to pay creditors and that client funds must be returned to the customers.
Consider a broker’s money and the money of its customers mingled together. If this is the case, companies owed money by your broker may come after your money!
Segregated accounts ensure that customer monies be easily traced and repaid in the event of bankruptcy.
Separate accounts for consumer funds and broker funds guarantee security. Do not deposit money with a broker who does not employ segregated funds.
Next Lesson: Is the Forex Broker Licensed and Regulated?