Why Do Forex Brokers Go Bust?

    • 5 posts
    May 26, 2022 3:18 PM EDT
    https://www.wikifx.com/en/newsdetail/202205253054425528.html

    Alpari · a day ago
    Abstract:The forex market has always looked glamourous from the outside with money-making opportunities everywhere, especially when it comes to forex brokers. With a high failure rate for forex traders to become successful, shouldn’t forex brokers be all profitable? What is the real reason that so many forex brokers go bust?
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      Veteran forex broker Alpari UK was hit by the serious impact of the CHF abolition and went bankrupt in January 2015, resulting in a large number of customer accounts suffering from huge losses when the company finally filed for bankruptcy. Its liquidation team KPMG took more than 2 years to finally release the last batch of customer compensation funds in recent days. Customers were compensated with funds at a rate of 82 cents per dollar restored.
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      There are 2 main reasons for foreign exchange brokers to file for bankruptcy.
      1) The company's necessary capital shortage
      Foreign exchange brokers must be regulated by the local and operating markets, and the premise of the license is that its operating capital must meet regulatory requirements. Each regulatory jurisdiction has different minimum capital requirements, which are mainly used to demonstrate the broker's ability to maintain long-term operations. In addition, this capital protects the broker from going out of business if it faces significant losses.
      For example, the minimum regulatory capital requirement is $20 million in the United States and no less than 1 million AUD in Australia. However, one sudden and sharp fluctuation in the foreign exchange market can cause a broker to suffer a huge loss. In addition, margin calls from liquidity providers can result in brokers being forced to file for bankruptcy as their funds are quickly withdrawn.
      2) Brokers being slapped with lawsuits
      Forex brokers could be sued by their clients for a few reasons. The two most common situations are when forex brokers engaged in fraudulent practices and account managers perform acts that are not in the interests of their clients.
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      When a forex broker files for bankruptcy and goes bust, their assets become untouchable. No liquidity providers nor clients can claim their money anymore. Most traders trading capital would be stuck in their accounts because they were not allowed to make any withdrawals until the final settlement. Some brokers may eventually return the funds but some brokers just disappear into thin air, especially the ones that do not have a credible setup, to begin with – that is unregulated, unlicensed with no official business premises.
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      WikiFX is a global broker regulatory inquiry app that holds information of over 35,000 forex brokers in collaboration with 30 national regulators. Here, traders can find verified details of a certain forex broker before engaging with them
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