Investing In Traders: Why broker is important and how to do broker due diligence (Part 1)

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Most traders will send you a MyFXBook portfolio link, which is fine, but before you get excited looking into their stats, first check which broker it is. If MyFXBook page says that it's a real account, it doesn't mean anything in the real world. On the broker's side, real account and demo account is the same. It's just numbers on their server.

Now, if a broker is shady and if a trader is friends with that broker, they can ask to fake their account history. They can ask to put whatever numbers that they wish for however long that they wish. And the broker will do that because their interests align. The broker wants liquidity. They want unsuspecting investors from whom the broker will then steal money. That's how it works. So it's very important to check if the broker is reputable. Now, how do you do that?

First of all, you have to make sure that the broker has a long enough track record in business. At least five years. Ten years is better.

Also check that the broker should have multiple licenses in different jurisdictions. And at least one in a western country, like Europe, UK, Australia. If a broker has licenses only in offshore locations, that means that they do not have large enough capital because having a license in the Western countries costs money. I'm not saying that license will guarantee that a broker is reputable. No, it won't. Licensed brokers steal money as well. But it will at least ensure that the broker is big enough to consider your capital as not worthy of stealing.

And finally, check reviews. Again, this is not holy grail. Brokerage business is competitive. Brokers are employing people to write negative reviews about another broker. But in overall, if you see an average rating on Forex Peace Army or Trustpilot of one or two stars, that's a bad sign. Three stars is okay. It's kind of the norm in this industry. Also, check the content of those reviews. If a review is fake, in most cases you will understand that (you will see half of the positive reviews saying that the broker has good customer support, as if it was the most important thing in the world -- I mean, you're there to trade, make money, cash out the profits and make sure you're not scammed -- how many times do you actually need to talk to a person working at your broker?)

So just filter out for those fake reviews. Make sure there is enough reviews (at least 50) and make sure that the rating is OK.

And on Forex Peace Army, if it's outright scam, you will see a warning. So just skip these type of brokers.

And obviously, if the broker is totally unknown -- no information about them anywhere online -- that's definitely a startup broker, which probably doesn't have much capital.

And it can be a white label brokerage, actually, created by the same trader himself. Common features telling you that it's probably a white label brokerage are: unprofessional website design, no clear contact/headquarters information, no clear information about the team (key leaders/managers) working at the broker, no clear information about licences, grammatical mistakes. And to open a white label, it costs a few grand and and that's all. And then they can fake their trading history and sync it into MyFxBook.

So don't slip on this trap and make sure the broker is reputable.