Why I Don't Like Forex Brokers

In my last post, I talked about the record setting gold and oil prices.  I also mentioned how well I have done in my Forex broker by investing in silver on margin and achieving over 1,700% return in a little over a year.  Unfortunately, I only invested $100.  It sucks.  I should know!!  If only I had invested $1,000 I would now be able to pay off all my student loans.  Argh.  I did tell you one of my reasons why I only invested $100.  Investing on margin is risky.  And, I didn’t know if I was at an exact bottom in gold - so $100 was all I was willing to bet/speculate at the time.

What I didn’t tell you was why I WOULD NOT put much money into a Forex broker, EVER.  Well, maybe I shouldn’t say EVER.  But I would NOT put much money into ANY Forex broker right now when the financial situation is so shaky.  Why?  Well, I’ve told the story before.  But here it goes.    A few years ago when I first learned about Forex and the amazing leverage and potential gains, I became excited and after a little research, I decided to open a Forex account.  I picked what I thought would be the safest company.  It was VERY large… a multi-billion dollar company with other divisions in the investment field.  I thought it would be the safest bet.  So I deposited ~$2900 USD.  I never made a single trade because I was still trying to make money in the practice accounts with fake money and was having little luck.  After a while I decided that perhaps Forex currency trading wasn’t my cup of tea because I’m a longer-term investor and I can’t predict what will happen in the next five minutes or five days - but 5 years is easier for me. 

Before I could withdraw my money - which was a lot for me, being a student and all, the company went bankrupt.  Refco.  How I hate you.  I guess their bond division pulled them under.  They attempted to sell the Forex division but the bidders didn’t bid as high as the cash value being held in the company.  You see, Refco’s creditors knew something I didn’t.  When you put money into a Forex account - it is deemed unsecured debt obligations.  So, even though I was a CUSTOMER, they took the money I deposited and used it to pay their creditors.  After several years of going through bankruptcy court I got a cheque for $1,164.40.  Ouch.  I didn’t even make a single trade. 

So, in this time of turbulence, where MAJOR banks are getting bailed out to prevent a financial collapse of the system, I simply don’t trust Forex brokers.  I can’t trust them after what happened.  I didn’t lend them the money, but that is how I was treated when they went through bankruptcy - and guess what?  The banks that they owed money to took my money - so when those banks make dumb financial decisions that risk their money and they end up losing some I hate to see the government bail them out.  Seems like they play by a different set of rules than the rest of us.

I believe gold is going to continue to go higher - especially because the problems with the U.S. economy and the USD aren’t over.  Until they are, I will continue to hold and invest in gold/silver.  I will keep the gold trade open in my Forex broker - but I don’t think I will add any more money to that account.  I don’t trust the Forex brokers enough to deposit much money with any of them.  I’d much rather invest in physical gold/silver, stocks, warrants, options and private companies.

Comments

[sedek]

Good points. My suggestion is to withdraw your profits as you go, banking them, rather than getting greedy with the lure of compounding.

Are the same risks of insolvency possible in commodity futures? Like you I have a nagging voice about my forex, interbank fx, and have wondered if I would be better off switching to Ira Epstein to play the Dollar in a secondary manner, through oil or gold.

[nodo]

Robert, I have just read you article on gold & silver, I also lost a bit of change in the forex market. I am from the old school if you know what I mean, elderly in other words and I suppose I trust people too much. I opened an account with a broker went through all the training etc. thought I was ready to trade, needless to say I wasn't. The thing that finally taught me a good lesson was watching the price go to my stop, I mean exactly, then turn around and head south. I had no idea what was going on, I thought how in the world could an inexperienced, new comer have picked the exact spot the thing would turn at??? I continued to try to get better at the trading game because I am elderly and needed to find something I could do at home to increase my measly social security income so that I can live till I die. After I had lost all of my paltry savings I read an email from this young lady who trades forex, she mentioned brokers hunting your stops, well the lights came on but to late for me. I became seriously ill very shortly after that and can no longer work to increase income, so these people really hurt me, 3 grand is not a lot of money but it was all I had, I trust that they will get their just rewards in due time. Just be thankful that you are still young and will be able to overcome your loss. If a bunch of money fell in my lap tomorrow I wouldn't have the slightest idea what broker to use, I certainly would have a hard time choosing one. My very best to you for you trading in the future.

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