The dangers of trading with an unregulated broker

So, you’ve been demo trading for a while and now you are at the point of choosing a broker for your real account. Perhaps you’ve been convinced by the super tight spreads and attractive bonuses that many brokers offer today? Maybe you don’t even care if they are regulated or not? Before you make your choice let me first tell you about the dangers of trading with an unregulated broker:

Unregulated brokers:

  • Not guaranteed that you will be able to withdraw your funds!
    Regulated brokers are required to work in accordance with strict laws that ensure they treat client’s funds with care. They are required to submit regular monthly reports of their work to the regulatory agency. In addition, the regulators have different tools to constantly monitor the work practises of the broker.
    On the other hand, when you deposit money with an unregulated broker basically what you did is you’ve placed your money at the mercy of the broker to give it back to you.
    Think about it.
    If they don’t want to let you withdraw your funds there is no one that can make them to since they are not a regulated firm. There is no law that says they must keep your money safe, and guess what? Most often they won’t!
  • No security of funds if the broker goes out of business or declares bankruptcy!
    When you deposit money with a regulated broker, there is something called “segregated bank accounts”. That is to say, most regulated brokers in the developed countries are required by law to keep client funds in separate accounts from their capital. So, in the event, the broker declares bankruptcy your funds will be completely untouched and you can withdraw all the remaining balance of your account.
    The UK, under the regulation of the Financial Conduct Authority (FCA), has some of the most rigorous laws for financial firms such as Forex brokers. Even in case the broker somehow didn’t abide by the law, and somehow lost or stole your money, you are still secured and you will receive the full amount of your account balance up to £50000. Above this limit, you won’t get all your money back, but you will get most of it.
  • Nowhere to complain about a bad service
    With a regulated broker If the client thinks that the broker is not doing something right, he can file a complaint with the regulatory body and they will investigate the issue further. If it turns out the broker really mistreated the client or his funds, the regulator will fine the broker with a penalty fee.
    However, with an unregulated broker, if they don’t answer your calls, emails or otherwise you somehow feel mistreated as a client, you are left all alone.
    The problem is between you and your broker only.
    And really, why would the broker care once you’ve given them your money?
  • And lastly, an unregulated broker can just plainly SCAM YOU AND GET AWAY WITH IT!
    Yes, you read that right.
    There is very little you can do to get your money if you get scammed by an unregulated Forex broker. Your only option is a lawsuit, but even in such a case you are suing an unregulated company. Ultimately, it was your fault to deposit money with a firm that has no legal obligations.
    So, basically, what can happen is they can steal all of their clients’ money, close thei shop and take a vacation to some remote location. And in fact, this is what most often happens with unregulated brokers, sooner or later.
Hopefully now that you understand some of the most important dangers of trading with an unregulated broker, you will think long and hard before choosing where to place your money. It’s always highly recommended to thoroughly research any broker you are considering to trade with.