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Finding a safe Broker: Clues that will help you separate friend from foe

Discussion in 'Company Articles' started by AsstModerator, Jan 27, 2010.

  1. AsstModerator

    AsstModerator FPA Forums and Reviews Admin

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    This was submitted via email by Bryan Sayers of ForexFraud.com. I'd like to thank him for providing this to the FPA.


    As a trader, an online forex broker can be your best friend, or your worst enemy. A legitimate, competent firm will help you enjoy a smooth and easy trading experience, while an irresponsible, and worse yet, fraudulent one may bring your forex dreams to a swift and brutal conclusion. Fortunately, there are some precautions that you could take to ensure that you are trading with a broker worthy of the title. Below you’ll find some of the most important items on a hypothetical checklist.

    1. How long has the company been in operation?

    A company that has a had longer lifetime has also had more interaction with regulators and traders. This is by no means a guarantee against fraud, but is nonetheless an advantage against a firm that been in operation for just a few years and is only known to small group of traders.

    2. Where is it located, headquartered, or regulated?

    The firm should be located, headquartered and regulated in the U.S. The American financial system is sophisticated and highly competitive, and authorities have more experience dealing with fraudsters as well. If the U.S. is not chosen, the broker should at least be based in the industrialized world. The worst choices are those based in places like Panama, British Virgin Islands, or Switzerland.

    3. Have the managers been active in other brokers?

    Are the founders of the broker well-known in the financial industry? Can you track their past experiences? Or are they some unknowns from Russia or Eastern Europe with little background in any financial profession? A solid background is a great way to separate the wheat from the chaff among brokers, although it is far from being a perfect criterion for identifying fraudsters.

    4. What about the market capitalization of the firm, is it a public company?

    It is in general preferable to trade with a public company. The higher the capitalization, the better, as well. This item is of lesser importance then the other factors in this list.

    5. Is there a forum where traders can make complaints or voice their opinions?

    If there’s a forum, you have a far better chance of acquiring a realistic opinion on the broker’s competence even before trading. Unfortunately, there’s no way ascertaining the degree of moderation. Some brokers remove or disallow negative commentary, so in fact the presence of some moderate criticism on a forum may be proof of competence and accountability on the part of the broker.

    6. Do you get answers to questions asked?

    Contact the customer service, ask the questions in your mind. Do you get answers? How friendly are they? How knowledgeable? Keep in mind that the quality of the service you receive may diminish once you become a client.

    7. Is there a dealing desk involved?

    Dealing desks do not necessarily indicate dishonesty but many traders are wary of them for obvious reasons. You may choose to focus on brokers that offer fully automated trading with no dealing desk in order to minimize the possibility of any tampering with your account or trading.

    8. What is the minimum initial deposit requirement?

    This should be as low as possible, especially with a mini-account, and a newly launched forex broker. A well-established company with a good reputation can afford the keep the minimum requirement higher, but this can hardly be the case for a new firm that seeks to attract customers.

    A forex demo account is helpful in testing the competence of a broker, but only on a preliminary basis, and with very strong caveats. Keep in mind that a demo account is basically an online game, so the broker can afford to offer an excellent experience in demo trading, while falling abysmally short of the minimum requirements for competence in live trading. Setup your mini account, spend some time getting used to the broker’s system, and test it under various market conditions. After a period of examination you’ll be able to decide if the firm can live up to its advertisement claims, or not.
     
  2. Pharaoh

    Pharaoh Colonel

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  3. Bowmaker

    Bowmaker Private, 1st Class

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    Have to say that whilst I agree with most of your post I have to disagree on point 3. It says that any broker should be US based. This gives the impression that every other country has 2nd rate brokerage which is simply not the case. i live in the Uk and use UK brokers who are probably better regulated than most of US. I fully realise that their are scam brokers in every country and particularly in some of the countried you mentioned.
     
  4. Pharaoh

    Pharaoh Colonel

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    I've always recommended NFA and FSA above others. This was a combination of reputation and my familiarity with them. I'm sure there are other good regulators, but don't know enough about them to give a wholehearted endorsement.

    I am pleased with some of the improvements in regs in Switzerland and Cyprus. Hopefully, that will continue to get better.

    Currently, some of the insane regs from the NFA and even more insane ones from the CFTC have me on the edge of closing all of my US accounts and taking all my money offshore. If the CFTC really does pass 10:1 leverage, I'll be actively recommending against US brokers for most trading strategies.
     

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