One question that I get asked all the time is, how do we trust Forex brokers? And if so, which ones?
The first thing I would say is, in this world and climate, have your wits about you. Remember the X-Files? “Trust no-one” was one of Mulder’s mottos. So first things first, do your research. Even if people tell you, “this person” or “this organisation”, or “this establishment”, or “this company” is trustworthy, then find out for yourself.
So it’s a common principle in life, find out whether what you’ve been told is 100% correct. This applies even more so to Forex Brokers.
Everyone’s heard the “horror stories”, where brokers steal clients’ money. This can be done in a variety of ways, stop-hunting, platform freezes, and even downright refusing to pay out profits due to some ludicrous reason. But even though dirty tactics do exist within the market, the truth is, these dirty tactics are usually only employed by brokers that are unregulated.
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So the first thing I always say to traders asking me questions about which broker to go for is: Make sure they’re regulated. An obvious statement but you won’t believe the number of people who want to trade with an unknown broker just because it offers a 1 pip spread on AUD/NZD or something crazy like that. Don’t fall for the bait guys.
But then of course there’s one example that refutes everything I’ve just written above. Even if you do your research, even if you go for a broker that’s regulated, even if they’ve been established for years, even if their finances are in a healthy state, etc… can you STILL trust them?
The example I’m talking about of course is REFCO. Anyone who’s been in Forex for a few years knows about this. They were founded in 1969, so they were well established and well reputed. Hundreds of thousands of traders had an account with them. Their books showed they were in the good green. Basically, they had everything going for them. Or so it seemed. Then 4 years ago, in late 2005, a bombshell was dropped, where a multi-million dollar scam was discovered at the very top of the company. The rest as we know, is history.
The problem is, this example is often used to scare-monger more than to educate. The Refco example isn’t the be all and end all, otherwise no-one would ever open up a trading account. So really, to answer the question asked, can we trust forex brokers?
You can definitely do your due diligence to remove *most* of the initial mistrust.