Tomasz Beilich, head of the legal department of the Bytrend broker (bytrend.com), believes that the main problem for novice traders is not the loss of their first deposits (most of them go through this), but cooperation with a fraudulent broker. According to clients’ reviews by Bytrend.com, many of them in search of a worthy broker-partner at least once came across so-called “kitchens”.
In general terms, the work of a conscientious broker is as follows. A trader opens a deal and a broker’s job is to enter the position on the interbank market. The liquidity providers in this case are banks that try to offer the most attractive conditions – i.e. minimum spread size. At the same time, broker’s earnings depend on the difference in the spread or other commissions. It is unprofitable for an honest broker to quickly lose a client’s deposit since the total spread volume directly affects the increase in the company’s profit. For a trader this situation is also the most comfortable, since he has the opportunity to get the most attractive conditions for his activities.
It’s different with kitchens. It’s not a secret for anyone that a solid part of the deals is closed in the red hence a simple conclusion follows – if a client loses money then it is better to let them stay with the broker than float past. Theoretically there is no particular difference for a trader – the funds are still lost, but for an unscrupulous broker, such deposit drains become very profitable if the money does not go further than the company’s account. This is the main principle of a kitchen: to create the illusion of entering the interbank market and keep the trader’s lost funds for himself. In fact, money is “brewed” within the company hence the name comes. Of course, this approach radically changes the attitude to the results of traders. Now it is profitable for the broker to make clients lose as much as possible and there is a whole range of countermeasures against successful traders. Manipulations with quotes, difficulties with withdrawing funds, ignoring calls to support service are used. It is difficult for a trader to oppose something to such a dirty game: in most cases, such kitchens are registered offshore so going to court will be fruitless.
The target audience of such kitchens are novice traders who are taking their first steps in the Forex market. Many of them, having suffered from such unscrupulous brokers, lose significant funds and are forever disappointed in trading. To prevent this from happening Bytrend customers are advised to take the time to thoroughly analyze the chosen company. There are some general points worth highlighting.
First of all, we find out how things are going with the registration. The danger of an offshore license was discussed above, so it is better to give preference to companies registered in civilized countries. Recently, however, many quite decent brokers are registered in offshore zones in order to save time and money, but here each case should be considered separately.
The next point is the user agreement. No matter how boring it is, it needs to be read and understood. It’s about money and comfortable work, so you shouldn’t rely on chance. Any incomprehensible points are clarified with the managers of the company. Their reaction will tell a lot too. Reputable companies are interested in long-term cooperation with the client and try to satisfy his needs as much as possible. The main goal of the kitchen is to make you contribute at least some amount of money. Do not forget that accepting the terms of the contract means agreeing with all the points, if something is missed at this stage, it is no longer possible to win back.
You should be very careful about the technical side of the issue. A high-quality platform is not only a sign of a company’s investment, but also a guarantee of a comfortable work for a trader. Most part of serious companies offer the opportunity to test the platform for free to fully understand the functionality.
It is always worth remembering that the time spent on analysis helps to make the most correct choice, which, possibly, will affect the entire subsequent career at the Forex market.