Why do forex brokers go bankrupt?

In order to trade professionally in the Forex market, you have to use intermediaries when opening transactions, called Forex brokers.

This type of company does not guarantee the protection of your deposits as classic banks do, so in the event of bankruptcy there is a complete loss of money.

The broker refuses to fulfill its obligations to clients, and as a rule, traders’ accounts are first frozen, and then the company completely ceases its activities.

Therefore, it is so important to understand why a broker goes bankrupt, so as not to make a mistake and entrust money to the wrong company.

Let's start with the fact that it is mainly brokers who go bankrupt who do not bring transactions to the interbank market and provide them themselves liquidity.

Reasons for bankruptcy of forex companies

The main reason why brokers go bankrupt is the massive and urgent withdrawal of money by clients. As a result, the broker simply does not have enough funds to pay off all obligations.

A large number of applications causes an increase in the time for their processing, and this in turn provokes even greater panic.

If the company acts simply as an intermediary, it will only need time to return all client funds. But when trading is not conducted entirely honestly, and the broker manages clients’ funds at his own discretion, this may be the reason for refusing payments.

The main role here is played by the news that triggered the start of the process - accusations of fraud, revocation of a license, bankruptcy of partners providing liquidity.

How to protect yourself from broker bankruptcy?

There are several ways to help reduce the likelihood of losing your equity:

• Working with ECN brokers - companies do not interfere with clients’ trading, but only transfer orders - https://time-forex.com/vsebrokery/ecn-brokery

• Segregated account - will completely protect your money since it is in the bank account and only serves as collateral for opened transactions, and is not transferred to the broker - https://time-forex.com/vsebrokery/segregirovannyy-schet unfortunately such accounts are very rare , but they still exist.

• Insurance in case of bankruptcy – allows you to receive compensation up to 20,000 euros in the event of bankruptcy of the broker. List of insured brokers – https://time-forex.com/vsebrokery/zastrahovany-broker

Nowadays, broker bankruptcies are quite rare, but it is still better to be prepared for such a surprise, since it is practically impossible to get your money back afterwards.