Forex kitchen brokers who are they and how to recognize them
Such a concept as a Forex kitchen can often be found among professional traders; there is a rather negative opinion about the activities of these companies and a number of misconceptions about them.
There are also several signs by which one can identify a given representative of the foreign exchange market. This and some other points will be discussed in this article.
What is a Forex kitchen ? It is a trading platform without direct access to the currency exchange; all transactions are carried out between the trading participants themselves.
In case of low liquidity of one of the currencies, a brokerage company can itself act as a partner in the transaction and, in case of unfavorable developments, adjust the rate or create technical difficulties for the trader.
At the same time, there are a number of misconceptions due to which representatives of large brokerage companies, who accept orders from traders and then transmit them to the server of the main company, are also included in this category.
The only drawback of such brokers is the execution time of orders, due to the large number of intermediaries on the way to the market and the increased likelihood of technical failures.
How to determine that a broker is a kitchen?
1. The short lifespan of such a company - usually up to a year, you can check by finding out the lifespan of the website on which information about the broker is located. Or by looking at the constituent documents, which are often published on the company’s official website.
2. A small set of trading instruments, since the circle of trading participants is quite limited and it is simply not realistic to ensure the liquidity of all instruments.
3. Lack of necessary licenses - in most cases, the forex kitchen has a license allowing it to organize gambling. At the same time, one should not offend companies that do not have a Russian license; they often have permits to organize exchange trading on equally reputable exchanges.
4. Lack of awards for participation in international competitions - who will award the broker of the year nomination to an unknown and dubious company.
5. Small number of clients. Sometimes it’s enough to look at the visitor counter of the site where clients are registering and everything immediately becomes clear.
6. Only online contacts - any self-respecting broker has a number of real offices and representative offices.
A Forex kitchen is often no different in appearance from a reputable company; membership in such a category can only be determined by analyzing the above data.
This type of broker is especially dangerous for large market players; the situation usually develops as follows.
The trader submits an order to buy currency in large quantities; if there is no counter order on the internal server, the broker himself comes into action and sells the currency to the trader.
If a trader incurs losses on an open position, then the trading organizer does not interfere with the work process, otherwise, in order not to lose his money, a careless DC begins to regulate the process manually. There are malfunctions in the trader's terminal or stop orders do not work, everything is aimed at making the transaction unprofitable.
It is for this reason that the larger the volume of transactions in the Forex kitchen, the sooner you will lose your money.
There is only one method of dealing with Forex kitchens - this is to immediately start working with proven brokers and avoid cooperation with small offices.
Try to avoid cooperation with small, unknown companies, no matter what favorable trading conditions and bonuses they offer. Usually the most attractive conditions are just a trap for a gullible client.