Is the forex broker a legitimate company?  Can you trust it?

Unlike Batman in the story from the previous lesson, you’re not going to know who you are trading with.

And even if you did, that doesn’t mean you should blindly trust them.

Do not trust Spider-Man.  He stole my money.  Feel free to skip his upcoming movie.

Even though it started as fun and games where Batman and Spider-Man were supposed to be making friendly bets on trying to guess where GBP/USD was headed.

It didn’t end up so friendly.

Batman ended up getting duped by a fellow superhero who was supposedly a “good guy”.

If you’re not familiar with the story above, this means you haven’t read our earlier lesson on How Forex Brokers Work starring Batman and Spider-Man.

It’s highly recommended that you read this lesson first.

Forex Brokers

In order to trade forex, you will need a trading account with a provider of online foreign exchange (FX) trading or CFD trading services. 

This is more commonly known as retail “forex brokers” or “CFD providers”. 

When you open a trading account with this company, you will need to deposit money into the account so you can trade.

Are you sure you can trust this broker?

Unfortunately, not all brokers are honest and trustworthy.

A big issue with the retail forex trading industry is a lack of transparency.

There is also a problem because of unclear regulatory structures with insufficient oversight.

Due to its decentralized and global nature, the forex market is less regulated than other financial markets.

Fraud

This makes it more prone to fraud.

And with the rise of internet-based trading platforms since the early 2000s, forex trading has become even more accessible and popular among retail traders across the world.

This explosion of noob traders (“fresh meat”) creates more opportunities for dubious behavior by shady brokers.

These shady brokers participate in fraudulent schemes, order manipulation, refusal to pay out for wins, or preventing account holders from withdrawing their funds.

In the past, many forex brokers were unregulated, which means that these brokers were NOT operating under the supervision of a governing body whose role is supposed to protect traders from being fleeced.

So if you are scammed, there’s no hope for any legal recourse.

Your money is gone.

Fast forward to today.

While the retail forex industry has slowly become more regulated, shady brokers still exist who should not be in business.

This is why the most important first step is verifying the legitimacy of the forex broker you choose.

When you’re looking to trade forex, it’s important to identify brokers who are reputable and avoid the ones that are not.

You don’t want to end up being part of the unfortunate group of individual traders who fall prey to a forex scam.