A real broker or a "kitchen"? How to distinguish grain from chaff, and scammers from honest brokerage companies?
Instructions
Step 1
Currently, the Internet is replete with an abundance of various companies calling themselves brokers in the Forex market. Only the lazy no longer knows what the Forex market is now. This is an international currency market, where a large volume of transactions is carried out every minute. Due to the great popularity of the Forex market among those who want to make money on it, more and more companies offer us to make money with their help. However, not all of us know about how to become a licensed broker in the Forex market, you need to go through a difficult and far from cheap path. Naturally, not everyone goes this way, but due to the high profitability of this business, many want to make good money on this. This is where the "kitchen" brokers grow like mushrooms after the rain.
Step 2
So what is a "kitchen" broker? A company that does not transfer clients' trades to liquidity providers. Simply put, everything revolves inside the "kitchen". A licensed broker always has a liquidity provider, as a rule, these are large world commercial banks, or cooperates with a liquidity aggregator - a company that is an official intermediary between several world banks and a broker, and in turn selects the best price among available liquidity providers and transfers it to the broker … To some extent, the work of a broker with a liquidity aggregator is more solid than just with one of the providers. Notable liquidity aggregators are Integral and Curennex. If your broker says that he works with one of them and can prove it, then this already by almost 95% excludes the fact that he is a "kitchen".
Step 3
The second proof, but less significant, of the broker's honesty is the presence of a regulator, or, more simply, an official license, which gives the right to conduct brokerage activities. But there are several "buts" here. Obtaining a license anywhere in New Zealand or Cyprus is not that difficult. In fact, the official body that issued the license to the broker is the regulator. Here are just the regulator, the regulator is strife, and he can revoke the license at any time if he considers the actions of the broker to be unlawful or dishonest. Regulators can be state-owned, which is preferable, especially if the state is, for example, Switzerland, Germany or the UK. They can also be Associations, such as KROUFR (Commission for the Regulation of Relations of Participants in Financial Markets). Such regulators do not have any legal obligations and are created only for advertising and throwing dust in the eyes, there will be no sense from them if your broker will humble himself, taking your money. In any case, the more authoritative the regulator, the more chances that your broker is reliable. So, let's summarize. The broker must have a license and a regulator. Not in words, but on the regulator's website, cooperation with this broker must be confirmed. The broker must, at your first request, send you a contract with a wet seal, certifying the cooperation between him and you. It is even better if the broker has an office in your city, not as a partner or agent, but as a branch of the company. If, for example, you live in Kaluga, and you are supposedly called from London via IP telephony, be sure that 90% of you are called from a neighboring city or a neighboring country at best.
Step 4
Now let's talk about how to identify the "kitchen" directly by trading. Firstly, if a company provides a fixed spread, this is not an indicator of its solidity and reliability. The spread should be floating, but not more than 30 pips. You can't run away from slippage either, but if they work constantly or very often against the client, this should already be alarming. If orders are executed with a delay, with a calm market for more than two seconds, this also means that most likely transactions are not sent to the liquidity provider. If order execution deteriorates when profit appears on the account, buy limit sell limit orders do not slip into a plus, this should also alert you. If you are in every possible way delayed with the withdrawal of profit, or the body of the deposit from the trading account, technical support feeds you breakfast, or says that they have problems on the side of the liquidity provider in submitting quotes, this is also not good.
Step 5
And, perhaps last, the agent system. Not a very strong criterion, but in addition to the rest, it will just do. If you, as an agent, for attracting new traders and investors are offered 10, 15-20% of their first deposit, or 5% from each transaction, regardless of whether it is profitable or unprofitable, this may also mean that the company needs client funds, and having received them, they are hardly going to return them, especially with a profit. After all, what is the broker's job:
provide the client with the opportunity to trade on the Forex market, for which the broker receives a commission from the client's transactions. And nothing more. And in order for the client's money, which he trusts the broker and which, accordingly, risks during trading, were reliably protected, the broker must have reinforcement accounts, the so-called segregated accounts, in which client funds are stored, and the broker has no right to dispose of them as his own. What is the easiest way to check for a segregated account with a broker? Request an invoice for replenishment by bank transfer. Then you will see which bank your broker cooperates with, and in which he stores your funds. But there is a big hole in the segregated account business. According to the legislation of Russia and Ukraine, and possibly some other countries of the Commonwealth, the state protects only bank deposits and does not protect investments in Forex in the event of a broker's bankruptcy. That is, in fact, the state does not act as a guarantor of the safety of your investments (we are not talking about losses as a result of unsuccessful trade). Therefore, a conscientious honest broker will always offer the client the opportunity to obtain an insurance policy from an insurance company. This, perhaps, is all. I hope this article will help all novice traders in choosing an honest broker. A passing trend!
