Safety of online forex dealers

I

InTheZone

Hello,

Almost all of these online forex dealers I see are not affiliated with a bank, and don' t have the balance sheet to absorb losses from poor market making risk management.

It seems to me that it's very risky trading through these firms.

Sure, some of these firms say your funds on deposit are protected by SIPC insurances-- that's because they deposit the funds in a bank.

But are the funds in your name, or in the forex dealer's name? I think it's the latter.

So in the event the forex dealer blows up through poor risk management, how safe is your money really?

Can anyone shed some light on this issue?

Thanks.

-- ITZ
 
Quote from InTheZone:

Hello,

Almost all of these online forex dealers I see are not affiliated with a bank, and don' t have the balance sheet to absorb losses from poor market making risk management.

It seems to me that it's very risky trading through these firms.

Sure, some of these firms say your funds on deposit are protected by SIPC insurances-- that's because they deposit the funds in a bank.

But are the funds in your name, or in the forex dealer's name? I think it's the latter.

So in the event the forex dealer blows up through poor risk management, how safe is your money really?

Can anyone shed some light on this issue?

Thanks.

-- ITZ
More...


as a newbie to forex, i am not exactly sure of the details--- BUT i do know that i would only trade with the largest firms who provide very good risk control. for instance the platform i use has an automatic liquidation feature should margin ever be violated--this should protect firm if the worst occurs.

best,

surfer:)
 
Surfer,

These firms are making markets in the currencies and taking the opposite side of their clients trades. If the firm holds overnight positoins, for example, an averse move can take a chunk out of their equity.

There's no clearing firm involved with interbank forex, unlike with future, stocks, and optoins. Thus if any party of the currenty transaction goes belly up, whether it be your or the dealing firm, the other party is out of luck.

Plus since your funds are not held at clearing firm under your name, (please correct me if I am mistaken about this), it seems to me that you may have problems gaining access to your funds.

-- ITZ
 
Quote from InTheZone:

Surfer,

These firms are making markets in the currencies and taking the opposite side of their clients trades. If the firm holds overnight positoins, for example, an averse move can take a chunk out of their equity.

There's no clearing firm involved with interbank forex, unlike with future, stocks, and optoins. Thus if any party of the currenty transaction goes belly up, whether it be your or the dealing firm, the other party is out of luck.

Plus since your funds are not held at clearing firm under your name, (please correct me if I am mistaken about this), it seems to me that you may have problems gaining access to your funds.

-- ITZ
More...

thanks for the info, zone. i am going to research this issue further.

surfer
 
Quote from InTheZone:

So in the event the forex dealer blows up through poor risk management, how safe is your money really?

-- ITZ
More...

In the event the forex dealer blows up through poor risk management there is a huge possibility that you can lose all your money. The situation is very simple. Forex is not regulated market. So there is no segregation of the funds in forex business. The only way is to work with a reputable and well-known broker.

So far the only broker I know who has so called insurance in this case is SaxoBank. The insurance will cover ~ $ 25,000 of your funds.

Refco is also very big name in this bisiness.

I hope it helps.
 
Thanks Adler.

Your post helps very much.

I've sent e-mails to Gain Capital, one of the larger online dealers according to their web page, about this same issue and have yet to receive a response from them. Not a very good sign, in my opinion.

-- ITZ
 
also, what I tell everyone who wants to get into FX,
online FX trading is IMO suit really suitable for DAYTRADING.
spreads are too high, will likely kill you. 2 pips can you take,
4 pips are too much to be consistently profitable.
 
Quote from InTheZone:

Thanks Adler.

Your post helps very much.

-- ITZ
More...

No problem. Let me know, if you need more information. Always glad to help, if I can.

Quote from InTheZone:

Gain Capital, one of the larger online dealers according to their web page, ......-- ITZ
More...

Btw, I have 5 steakhouses in my neighborhood and they are all claim that they are #1 Steakhouse in US.
-))))
 
You must log in or register to reply here.
Back
Top