Who are Forex Kitchen Brokers and how can I recognize them?

The concept of a Forex kitchen is quite common 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 that can help identify this currency market participant. This and other points will be discussed in this article.

What is a Forex kitchen ? It's a trading platform without direct access to the currency exchange; all transactions are conducted between the trading participants themselves.

In the event of low liquidity in one of the currencies, a brokerage company may act as a counterparty to the transaction and, in the event of an unfavorable development, adjust the exchange rate or create technical difficulties for the trader.

At the same time, there are a number of misconceptions that lead to the inclusion in this category of representatives of large brokerage companies that accept orders from traders and then transmit them to the main company's server.

The only drawback of using such brokers is the time it takes to execute orders, due to the large number of intermediaries involved in the process and the increased likelihood of technical failures.

How can you tell if a broker is a scam?

1. The company's short history—usually less than a year—can be verified by checking the website where the broker's information is located. Or by reviewing the company's incorporation documents, which are often published on the company's official website.

2. A small range of trading instruments, as the circle of trading participants is quite limited and it is simply not realistic to ensure liquidity for all instruments.

3. Lack of necessary licenses – in most cases, forex kitchens hold a license permitting gambling. However, companies without a Russian license should not be offended; they often hold 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. A small number of clients. Sometimes, just looking at the visitor counter on the website where clients register is enough to immediately understand the situation.

6. Online contacts only – any self-respecting broker has a number of real offices and representative offices.

A forex kitchen often looks no different from a reputable company; determining whether it belongs to this category can only be done by analyzing the data above.

This type of broker poses a particular danger to large market players, and the situation usually develops as follows.

A trader submits a request to buy a large amount of currency. If there is no counter-order on the internal server, the broker itself takes action and sells the currency to the trader.

If a trader incurs losses on an open position, the trading organizer does not intervene. Otherwise, to avoid losing money, a negligent DC begins to regulate the process manually. The trader's terminal malfunctions or stop orders fail, all aimed at making the trade unprofitable.

For this very reason, the larger the volume of trades in a forex kitchen, the more likely you are to lose your money.

There's only one way to combat forex kitchens: start working with trusted brokers and avoid small firms.

Try to avoid dealing with small, unknown companies, no matter how favorable their trading conditions and bonuses may be. Often, the most attractive terms are actually a trap for gullible clients.