Bankruptcy scenarios usually result in traders receiving pennies on the dollar for their accounts. My mission — the entire reason that this company exists — is to help traders find an automated edge to exploit around the clock. It requires my 7 years of education in the school of hard knocks. That goal is so consuming and challenging that we often lose sight of the big picture. When you deposit funds with a broker, everything happens with the pretense that the funds are your money.

You believe that you reserve the right to withdraw those funds at will, and that legally, those funds are your money. I hate to be the Bad News Bear, but that understanding is emphatically incorrect. Deposits at most brokers are unsecured loans to the broker. That generally means that equity takes the first hit, followed by depositors, followed by the bond holders.

If you apply that to a forex brokerage, it means that the owners of the brokerage are first in line to lose the value of their holdings. Once those losses exceed the amount of customer funds on deposit, you the Trader take the loss. Protecting your initial capital by choosing the right broker s is every bit as critical as choosing the right trading strategy to protect and grow the account. Before we dive into specifics, I want to highlight that there is no fail-safe method to avoid getting caught up in a broker bankruptcy.

The best that you can do is to mitigate the risks. The simplest tactic involves spreading your funds across multiple forex brokers. That may have been inconvenient in the past when everyone traded manually. Most of you use expert advisors today. Is it really that hard to open two copies of MetaTrader and let them run simultaneously? Even without safety of funds, I encourage you to open multiple forex accounts. Different forex brokers use different liquidity providers. Most traders get caught in the trap of thinking that the forex market is unified and that there is only one price for the EURUSD.

There are hundreds of different prices for the most liquid instrument, EURUSD, around the world. The prices are generally very, very close together, but they are different. The small differences between forex brokers really adds up for certain strategies. I remember visiting a private fund in Dubai back in The trader showed me account statements from different brokers running the same expert advisor.

The US government, represented by the not-so-fine folks at the NFA and CFTC, have been asleep at the wheel for decades.

Take note of their recent epic failures:. I know several customers that lost six figure accounts dealing with these brokers. The government claims that through its enforcement and regulation, it performs the due diligence that the trader would normally conduct. The discovery of multiple accounting frauds, all in the hundreds of millions of dollars MF Global was over 1 billion , exposes the situation for what it is: The CFTC and NFA are grossly incompetent at evaluating which forex brokerages are safe places to put your money.

The events in Cyprus had absolutely nothing to do with the forex brokerage. The company got caught up in banking events that put the entire system at risk. The bank account and its location of your broker is a critical factor in your decision. Here are some of the jurisdictions that I like for banking and forex brokers:.

I trade my live accounts at Pepperstone , which I believe is the best endorsement that I can give. My personal money is on deposit with the company. All of them have indebted banking systems up to their eyeballs. You risk getting Cyprused working with a broker here:. A line of credit is my favorite option. It eliminates most of the risk in a forex broker bankruptcy.

Starting a line of credit involves selecting a banking partner acceptable to both yourself and your broker.

Most brokers require a starting balance above one million dollars to consider accepting a line of credit from a bank. A line of credit is secured through a deposit at the bank of your choice. You do just that.

You open an account directly with the bank and inquire about establishing a line of credit secured through the cash deposit. The bank and its capital assures the broker that any losses you suffer are covered by the bank. The bank then deducts the losses from your available balance. Profits accrue at the broker. If you want to withdraw them, you simply pull the profits back into your bank account. The country of business where your broker operates becomes largely irrelevant.

Contact me directly at info onestepremoved. The rules for safe guarding your forex deposits are simple. There are countless forex brokers to choose from. You might also consider using one of our recommended forex brokers. You are legally lending money to the forex broker when you open an account. The broker then legally lends your deposit to the bank. The line of credit is the best option available.

Instead of facing two counterparty risks, you largely remove the broker from the equation. You can then focus on your trading and let your broker focus on its primary service of providing excellent execution on your trades. My live account is at Pepperstone. I have to say that Pepperstone has treated me well. Their response to questions has been fast and they go that extra to help. I set up 2 accounts with them a year ago one a full time demo and a live account. The live account is funded but i have not used it at all.

I explained to Pepperstone that until I was confident in my trading that my live account will not be used and for about a year it has never been used. I hoping in the next few months to be using my live account. Pepperstone told me that my desision was wise and not to trade till I felt ready. Have nothing but praise for them. Thanks for weighing in. Hi Shaun, very nice article and a very valid concern; I disagree regarding the UK, however, as each account is insured up to 50, euros, and I have this in writing from Oanda, one of my brokers, so I feel safer here up to this limit — Markus.

For a smiling face you definitely are a straight shooter and I really appreciate that. All advice is good radar filter for me. The straight-shooting tendencies usually get me in trouble in person, but luckily it goes over well on the internet. Thanks for your insight in the recent events Shaun. This is truely an unprecedented event, and some say there may be more like this to come. I have been using Pepperstone for 6 years now and mostly what I can say is that they are, and have been stable, consistant and reliable across there trading services to their clients.

For me this counts for everything. I have been waiting for any news from them to us their clients , but it appears business as usual, so far.

I am glad you never mentioned much detail about using stops to save your accounts in the SNB event, as stops played no saving part in this instant event, only to be filled once the prices levelled and data flow was restored. If they can run a true ECN model in that kind of market condition and walk away unscathed, that is precisely the kind of broker to trust with my money.

It would be crazy for someone from the US or western Europe to put money in Russia with the geopolitical tension. What happens if Russia defaults again? Whats your opinion about Interactive Brokers.

I do my automated trading with them. Also, you have to reset the connection for algo strategies daily, which is an unnecessary hassle. If you can find a way to keep your money away from the broker, I highly recommend that you do so.

Nowadays, my worst fears have been realized. I suggest that you check out my recommended forex brokers before you switch your account. Thanks for the insight! Thanks for prompt response! Kindly guide me on how to use it. Hi Shaun, Great Article. It appears that the world of Forex is full of sharks trying to con money out of us small fish. I got conned by a Cyprus broker: I opened the account and was surprised to find out that a person named Alan Levine who works for them, had deposited my funds in several pairs without me even knowing it!

Losing that much money is a brutal experience.

Europe Volatility - VelocityShares - VelocityShares

NInja brokerage works via Dorman Trading. Any thoughts about them?

Not sure how that works in the US for european customers. Do you know more maybe? I find it very distasteful the way NT stepped all over their brokerage partners in order to compete directly.

Thanks for the informative article … I have been making a change to a new broker … Can I check with you if a broker regulated under to EU regulation is safe… I am told if you are trading with an EU regulated broker it means that the broker complies with MiFID Markets in Financial Instruments Directive.

They are also regulated to Cysec regulation , The Cyprus Securities and Exchange Commission… Thks for your feedback… cheers.

Plateforme de trading SaxoTraderGO

Thanks for your reply.. I reside in Malaysia. Do you have any suggestions on a good broker and the amount of required to open a new account? I have been trading for about a year now. My preferred broker is Pepperstone. Can I do that? Thanks a lot for the article!!

Thanks for your message. Deposit bonuses are fairly common, although they are typically associated with low dollar deposits. Every heard of optionprime. I had invested with them for two years and everything great until last week. It just completely disappeared. The site no longer exists, nor do the support emails nor do the phone numbers. Nothing is on the net about them. No one has left any comments about them.

Was I their only investor in the whole world? Sorry to hear about that experience! I used Google to view the cached version of their web site — here are some phone numbers that hopefully still work:.