When dealing with speculative financial products, it’s not just about the right strategy and good risk management. The selection of the right broker plays a very important role. In the past, unfortunately, some brokers have experienced serious problems. Fortunately, there are also many dedicated and serious service providers. The following article tells you how to separate the wheat from the husk and which brokers you should avoid.

What is the meaning of good regulation?

The “licensing” of brokers by a regulatory body and their associated “supervision” is to ensure that the client’s rights are respected and their “data and money” well protected. The protection against money laundering and fraud is also an important task of regulators. However, the standards that brokers must adhere to when regulated by a particular regulatory body are set by themselves and vary by jurisdiction. For this reason, it is important to have a look closely at the authority, Although it is not an absolute guarantee of due diligence, if a broker is regulated by a very reliable and strict authority, the broker has the right to provide its services and must follow certain rules.

Customer funds are managed separately

An important standard regulated by all European authorities and many non-European regulators is the separate management of client funds. This is ultimately client property and therefore may not be used for other broker matters. As a result, the broker must raise funds for advertising, administrative costs, or other expenses elsewhere. Client deposits only serve to provide the required margin in trading. A clear separation of these funds is possible in many cases, even in the event of a broker’s bankruptcy, to return the funds to the client. A good regulator also supports this case and pays close attention to properly dealing with insolvency and the broker’s clients losing their ability to receive their funds.

In addition to the fact that client funds are managed separately, it is also important where they are managed. Again, it tells the broker, if it is a financial institution that manages a  high ranking bank .

Regulators are looking for evidence of price manipulation

Controlling the proper design of transaction prices is also one of the duties of a good regulator. However, this is relatively difficult, especially for broad market makers, since the brokers in this case, the price itself and therefore at least the direct competitors of the market. customer in the transaction occurs. A reputable provider protects against potential losing trades by internally balancing all client trades through an automated process and placing trades in the opposite direction to overhang the position. agreement with another supplier. So the broker earns his profit by the trading fees he receives from the client. A conflict of interest between the broker and the client no longer exists in this case as it does not matter to the broker’s profit if the client makes a profit or a loss.

By not protecting the financial markets against losses in dealing directly with their clients, but manipulating price the clients lose significantly more money, they can earn significantly higher profits. In order to detect and punish such a scam, the regulatory authorities closely monitor the price development of all brokers. If it comes unusually, this will be pursued. If a fraud is detected by manipulating prices , a broker is facing a high penalty and  license withdrawal  immediately.

Risk warning on broker’s website

Warning about the risks when trading speculative financial products such as foreign, CFD and binary options requires is also one of the provisions that regulators impose on brokers for with them.

As of now, by default, the website of online brokers indicates a high risk of loss , which can extend to the loss of the entire deposit .

While it is the goal of all brokers to win customers and make money with trading fees, this is not done with the pretense of reality. By warning of the risk of losing high speculative forms of investment, it is intended to prevent clients from logging into a broker with misconceptions and not being fully informed about the high risk.

Is this type of investment suitable for customers?

When opening a trading account, most brokers require not only personal information such as name, address and phone number, but also information about the client’s financial situation and prior trading experience. with financial products. While some traders may find it unreasonable to sign up with an online broker, for example, monthly income earned and which products have been traded in the past, this information serves to protect customers.

For regulatory bodies working under EU standards , this information is required. Potential clients, for whom the planned investment in the offered products clearly does not provide sufficient security and is therefore unsuitable, is not allowed to transact in this way or at least not encouraged. transaction. A dubious broker may accept all clients at this time, because each trader ultimately represents a broker’s profit . Because of the strict requirements of the regulator to ensure that profits are not paramount, it is also necessary to be careful Traders are not affected by inappropriate investments that destroy products financially not suitable for them.

Warn about “Foreign Broker”

Some brokers operating in the market are based in remote Caribbean countries and are therefore regulated by local governments. The Seychelles, an archipelago off the east coast of Africa, is a popular seat for financial service providers. While local authorities also impose some conditions that regulators need to meet, these are often much less stringent than EU or UK regulations. Also, in many cases, the controls are less intense, so a dubious broker in an “offshore regulation” has more chances of fraud.

While this does not mean that all brokers based in the Caribbean or Africa are automatically suspicious. However, the risk of holding the wrong broker here is much higher than in brokers regulated by an authority in Europe. The legal options for traders is also much better with EU regulation than so-called offshore brokers. If it comes here to  suit the broker , this need not be led at the other end of the world, which is practically difficult for Traders to do. For these reasons, we only recommend brokers that are regulated by particularly respectful authorities and therefore have to undergo  regularly rigorous controls .

 

Brokers in EU and UK

Unified regulatory standards ensure clarity

The abbreviation  MiFID  stands for “Market in Financial Instruments Directive” . MiFID is an EU directive designed to improve financial market transparency and protect investors . The goal of MiFID is that it is easier for investors to invest in European countries, and therefore also in online brokers within the EU. As the MiFID Directive applies to all European Brokers , the regulations of the individual regulatory bodies are similar. This also makes it easier for investors to keep an eye on different conditions.

High requirements must ensure safety

Brokers in the EU are bound by the MiFID directive and therefore also by high security standards . For example, suppliers must check whether the financial products offered are suitable for customers, or whether they are too high risk . Transactions in financial markets must be recorded comprehensively so that compliance with the principles can be understood later. Benefits received by a broker from another supplier must be disclosed to customer .

Strict regulations are intended to protect customer capital and prevent fraud .

EU Regulatory Authorities

There are many regulatory bodies in the EU. Which authority regulates a supplier depends on the country where headquarters  is located.

In particular, many EU brokers are regulated on the island of Cyprus byresponsibleCyprus Securities and Exchange Commission (CySEC). This is mainly because the tax conditions for financial services firms in Cyprus are particularly attractive. However, the  strict EU directives  also apply here .

Vietnam-based brokers are regulated by the Federal Financial Supervisory Authority of Vietnam (BaFin). However, there are almost no Vietnamese brokers available, as other EU countries often offer financial benefits under similar regulatory conditions. However, if a broker maintains a branch in Vietnam, it is usually regulated in some regions by Vietnam’s BaFin. Even without a branch in Vietnam, many brokers are registered with BaFin. However, this registration does not involve any comprehensive regulation, and the responsibility remains with the country of headquarters.

EU brokers may also have problems

While EU regulation follows high standards and is designed to ensure the safety of binary options trading, there is no guarantee that it will never be an issue. Unfortunately, in the past, regulatory authorities had to intervene with European brokers . While hedges usually work relatively well, so when it comes to payment problems, customers usually get their money back. But  protection 100% anti-fraud or unfair business practices cannot be provided under EU regulations. Therefore, traders should always pay attention and only invest as much money with a broker as they needDistribution without major problems possible.

What to do if there is a problem with the broker?

If there is a problem with the transaction, for example, if the broker does not pay the account balance within a reasonable time, it is advisable to clarify the provider’s customer service first. If this fails, there are other places that can help traders. Among other things, consumer centers know in such a case what to do. There may also be additional complaints against brokers. It is also possible to contact the relevant regulator directly, who can alert the broker to its obligations and, if necessary, take further action. Especially when it comes to large amounts of money, it is advisable to contact an attorney in case of doubt. For EU brokers, there is an advantage that a case can be brought before a Vietnamese court, which means no lawsuit has to be brought abroad.

 

Brokers be warned:

Below, we have compiled a list of brokers that we advise against signing up and depositing for various reasons.

Banc de Binary: After many problems and complaints from investors, the broker voluntarily resigned its CySEC license in January 2017, it is expected to withdraw it permission.

TopOption: The broker has been one of the top online brokers for a while. In the meantime, however, allegations of fraud and reports of problems with payouts, so the broker can no longer be recommended.

GrandOption: The parent company of this broker, Rodeler Limited, was fined €156,000 by CySEC for being problematic in several ways. Among other things, regulatory intervention involves unfair advertising, insufficient security, and the broker’s failure to respond to customer inquiries and complaints.

ZoneOptions: This Cyprus based broker is also not recommended by us.

CapitalOption: Due to lack of transparency and sometimes conflicting information on the website, this provider for binary options trading cannot be recommended.

Option Winner: Like TopOption broker, Option Winner is also run by Company Savecap Investment and therefore cannot be recommended.

OptionTrade: The OptionTrade broker ceased operations in October 2016 and is no longer available for binary options trading.

Dukascopy: The site is very confusing. Hidden costs may be incurred when transacting through this Swiss supplier. Also, Switzerland is not a member of the EU which is why complaining about legal issues is more complicated than brokers regulated in the EU.

OptionBit: This broker was formerly regulated by CySEC. According to the OptionBit website, the broker is currently regulated by the island nation of Saint Vincent and the Grenadines and is therefore one of the offshore brokers, caution should be exercised for the reasons mentioned above.

Algobit: Algobit is not a broker but a trading tool that identifies trading signals and provides traders with a recommendation on when to execute trades. Since Algobit is powered by the broker OptionBit, which is blacklisted by our broker, its use should also be encouraged.

General terms and conditions of brokers

Before signing up with a binary options broker , a potential client should read fullythe terms and conditions of the provider and sign up and deposit if there is no further uncertainty about the terms Exactly.

Be aware that the broker restricts your rights as a trader to certain terms . In the past, for example, individual brokers often had problems with payouts because certain conditions had to be met first.

Only if you have read and fully understood the terms and conditions of a broker and you agree to them fully  should you register.

Even without the broker’s fault, it can lead to high losses

Even with reputable online brokers there is no protection against loss . It is definitely recommended to pay attention to good regulation . But even if the broker meets all the rules and works seriously, binary options, forex and CFDs carry a high risk. This is a highly speculative form of investment in which profits and losses are subject to volatility , even with extensive professional price analysis . Traders should always be aware of this and treat invested money as  risky  investment. For example, a common mistake made by beginners is that they invest too much money in one position. At a good risk management always use only a small percentage of the total credit per trade. Therefore, even after many consecutive losses still  proceed according to chosen strategy .

Traders should also be aware of Margin Requirements , which exist for many brokers for Forex and CFDs. While positions are normally quicklyautomatically closed when required margin is no longer available, given the extremely volatile prices it is possible that this automatic closing can only take place after the price rises spike and the trader loses more money than his trading account is . In this case, a new deposit is required to compensate for the negative balance. To avoid this risk, it is possible to deliberately choose a broker explicitly excluding margin requirements in his terms and conditions,