Does he willingly adhere to best business practices in the industry and inform you of those activities, primarily designed to protect your deposits on account? These questions and many other related ones are being asked by concerned forex traders across the globe for several reasons.

Why are there so many forex brokers in cyprus » Online Forex Trading South Africa

Financial institutions and their intermediaries forex brokers fall into this latter classification are still reeling from the devastation brought about by the Great Recession. The ongoing European debt crisis is but one ramification from those bad times, but risk mitigation has now come to the forefront, as recent events in the forex brokerage industry can testify.

Currency traders understand that retail forex trading is high risk. Regulatory disclaimers broadcasting this fact are in abundance. Combine trading risk with having to beware of a few unscrupulous brokers that would rather drain your account with poor execution, slippage, and re-quotes, and we are reminded that we are our first and last line of defense, when it comes to protecting our deposits with a broker in some far off land or admitted tax haven.

But these risks are known. What about back office operations? Are there other risks that our broker would rather not like to disclose? Recent events in Cyprus directed a spotlight on this very issue back in April of this year. The two largest banks on the island, the Bank of Cyprus and Laiki Bank, had invested heavily in Greek bonds that were severely devalued. The resulting losses crippled both institutions.

Laiki Bank was closed. The Bank of Cyprus was reorganized, but depositors and stockholders lost substantial funds when bailout terms forced a To date, no funds or stock have been released. Why would this crisis have anything to do with forex brokers? Globalization has driven many entities, including financial enterprises, to move operations to low labor-cost areas or where regulatory oversight is not a perceived hindrance when offering new services.

Ever since when Cyprus entered the EU, it has touted itself as an international financial center. As many as 80 licenses have been issued to forex brokers that sought cost reduction benefits by locating labor-intensive processing and call center activities on this well-positioned island community. The issue then became one of counterparty risk — did customer deposits flow through either the Bank of Cyprus or Laiki Bank, subject to impoundment by local authorities when both banks were forced to shut their doors?

These funds are typically held offshore in Tier-1 banks, far from the risks presented by local banking institutions that may have acted imprudently. Brokers that followed these best practices had only to worry about operating fund balances in Cyprus in excess of , Euros.

The unfortunate forex brokerage firms, the ones too small or without enough capital that had to deal with local Cyprian banks for all of their business, are in disarray. Their only choices have been to raise more capital, be acquired, or close their doors, leaving forex traders stranded. Forex brokers have been busily distancing themselves from connections with Cyprus, setting up shop in other jurisdictions or acquiring addresses that appear more favorable.

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The smart ones have been advertising their segregation of funds in Tier-1 banks. Many websites now offer expanded reviews of these better brokers.

Risk comes in many different shapes and sizes. The crisis in Cyprus highlighted back office counterparty risk. Does your forex broker segregate your account balances from this type of exposure? By clicking the button above you agree to the Terms of use and Privacy statement. Thank you for your registration. Please confirm your iNVEZZ account in the next 7 days by clicking the link in your verification email. We use cookies to ensure that we give you the best experience on our website.

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What forex brokers will never tell you…

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Why Are There So Many Forex Brokers In Cyprus

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