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Choosing A Forex Broker
With currency trading becoming ever more popular, the number of brokers is growing at a rapid rate. What should one look at when deciding which broker to open an account with? These are the important points to consider.
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Avoiding Forex-Related Frauds And Scams
A lot of people have been 'burnt' from scam operations on the
Internet. Their sites may look so perfectly legitimate that you
doubt whether they would have gone through all that trouble
building a trading platform just to steal your money. Beware.
The first thing I look for is the geographical location of the
broker. If I find that they are based in a country where the
financial industry is, in my opinion, relatively unregulated and
under-developed, I quickly forgo signing up. This is terrible
news for honest brokers in those countries, but your job as a
trader is to protect your capital. If you loose that, then you
cannot trade. The onus is on them to convince you that they will
do the right thing by you as an investor.
I started out with an Australian broker. Currently I am using an
American one. I have not tried UK-based brokers but the British
financial industry is one of the best. Companies that are based
in countries such as Japan , Germany and France are probably
just as good too, if their website speaks your language.
Notice any license numbers that they may have registered with
regulatory bodies that act like government watchdogs who oversee
the finance and investments industries. These are organisations
that impose strict rules to safeguard your investment. Some of
these rules may include the requirement that brokers segregate
all customer funds from the operational funds of the business.
Your money is required to be put in highly-reputable banks and
the funds are only withdrawn from these accounts upon specific
withdrawal requests.
Take note that there are some fake regulatory bodies being
thrown around in cyber-space as well. Take a look at how long
they have been operating for. Try and search out any reviews or
comments made about them. See if you can find forums where
traders have discussions about their brokers.
Below is a list of things to keep in mind to help you avoid
being a victim of a scam:
* Stay Away From Opportunities That Sound Too Good To Be True
There are people who may have just acquired a large amount of
money just and recently are the same and are shopping around for
safe investment vehicles. These may include retirees who have
access to their retirement funds. It is understandable why
retirees would be drawn to 'high-return, low-risk investments'.
This is also what makes them very vulnerable. If you identify
yourself to be one of these people, be careful. A lot of
deceitful characters are after your money. Furthermore, only
allocate a tiny amount of your money to trading until you can
start growing it. Not all people can trade successfully, so it
is a venture you should take on haphazardly. It is your life
savings at risk.
* Avoid Individuals Or Organizations Who Claim To Predict Or
Guarantee Large Profits
Any form of trading is hard. Trading currencies is no different.
Be wary of statements that make it sound easy. Statements like:
* "Whether the market moves up or down, in the currency market
you will make a profit";
* "Make $1000 per week, every week";
Associated Websites
* "We are out-performing 90% of domestic investments";
* "You'll make returns of 70% a year";
* "Here is a no-risk strategy".
If they could make such returns, why would they even bother
letting you know about it.
* Be Wary Of Companies Who Downplay Investment Risks
Hold your wallet tight and zip up your purse when companies say
that written risk disclosure agreements are routine formalities
imposed by the government. Watch out for statements like:
* "With a $10,000 deposit, the maximum you can lose is $200 to
$250 per day";
* " We promise to recover any losses you have ".
* Be Wary Of Companies That Claim To Trade In The 'Interbank
Market'
Do not believe it when some people say that they have access to
the 'Interbank market' or that they can give you access to trade
in that market because that's where bargain prices can be
obtained. This is not true. The 'interbank market' is not a
place, it is not a physical building. It is simply a loose
network of currency transactions that are negotiated between big
financial institutions and other large companies.
* Ethnic Minorities Are Often Targeted
Ethnic newspapers and television 'infomercials' are sometimes
used to attract Russian, Chinese and Indian minorities.
Sometimes these ads offer so-called 'job opportunities for
account executives to trade foreign currencies', whereby the
recruited 'account executive' is expected to use his own money
to trade currencies and would often times be encouraged to
recruit members like their friends and family to do the same.
* Seek Out The Company's Background
Check any information you receive to be sure that the company is
who they claim to be. If at all possible, try and get the
background of the people operating the company. Do not rely
solely on oral statements and promises made by the company's
employees.
* If You Are In Doubt, It Is Not Worth Risking Your Money
If after trying to solicit information and at the end of it all,
you are still in doubt about the credentials of a particular
company, my suggestion is to start looking elsewhere.
You may find further information by contacting government
'watchdogs' because they keep up to date with trends and reports
regarding scams and other fraudulent activities. Please check
the resource section of this site for the information of
organizations that regulate the securities industry, sorted by
country. There is also a list of brokers that you may want to
look at.
Marquez Comelab, © 2006. This is an excerpt, modified from the
book: The Part-Time Currency Trader.
About the author:
Marquez Comelab is the author of the book: The Part-Time Currency
Trader . It is a guide for working men and women interested
in trading currencies in the forex market. See: http://marquezcomelab.com
and http://thefreedomtochoose.c
om for more.
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