The history of Forex Brokers
These days New Forex Brokers seem to constantly be emerging. New names appear on a daily basis and traders are left wondering how many Forex Brokers are actually out there. Now we are in the thick of a growing industry you are probably asked yourself how the heck all these Brokers started.
In the late nineties there were only a handful of Forex Brokers as the internet was not used so widely and people in general did not know about Forex trading and there were not great resources of information like there are today. In the past there were many unethical Forex Brokers that were operating call centers and trying to convince people to invest in the Forex market. There were the good, the bad and the ugly brokers but in general the level of transparency was very low so clients were not protected in the same way as they are today.
In the past, people were often convinced to invest in the Forex industry even though they had no clue about the marketplace. Brokers were pushing them to invest more money and they were B booking all their clients’ orders to maximize their profits. You need to also consider that back then and even in the beginning of 21st century the regulation for investment companies that were offering Investment Services on Spot Forex was not developed. Brokers were pretty much free to offer whatever they wanted and in many cases were charging very high fees, which drove traders to lose their investments. There was no one to report to and traders were simply relying to the Brokers’ good faith.
Examples of Ponzi schemes emerged around the globe. Forex companies that were operating suddenly disappeared without any trace and clients often lost their money. Some other Brokers decided not to pay out when clients attempted to withdraw profits or even their initial investment. Finally competent authorities started paying attention to the voices and the complaints of people that had a rough ride in this market. Regulations were put in place all around the world forcing brokers to be licensed and operate in accordance to specific directives and regulations. This thankfully pushed the vast majority of unethical Brokers to close down and those that remained in business to follow specific guidelines and procedures.
Even though that the entry requirements became harder than before, you have many new Brokers emerging on the market. This is because of the Forex trading boom that occurred over recent years. This boom has actually been great for traders as fierce competition began some years back. Traders can look for the most competitive conditions and make sure that they trade in a safe and non-manipulated environment. If they have an issue they can jump ship to the next broker or even use multiple brokers. We have experienced a dramatic reduction of the spreads offered by Brokers and the cost of trading has therefore reduced quite a lot. Also, the business model has turned from predominantly a dealing desk into a non-dealing desk business model. The great news is that with all the competition and increased regulation the market is becoming more transparent than ever and the traders enjoy fair trading conditions without any dealer intervention. The dark days of the past have been long gone. Traders generally know what they are looking for now, are better educated than before and brokers are generally more responsible and trustworthy than ever before.