Every aspiring trader wants to hit the ground running. They want to know which instruments to trade, where to get the best market signals, and how much capital they should risk. All of those things are important. In fact, they’re all vital parts of a successful trading strategy. However, they count for very little if you aren’t protected.
No, we’re not talking about protection from market losses. Those are a natural part of the trading process and something you need to get comfortable with. The losses we’re talking about are unintended.
They’re losses incurred through no fault of your own. In most cases, this means a company can’t pay its debts, in other words, it’s insolvent. These scenarios are rare if you use reputable trading platforms and brokers, but that doesn’t mean you can ignore insurance.
Make Sure Your Money is Secure
We’re specifically referring to the protection of client funds. Without this, your balance is at risk. We can liken the act of trading without adequate protection to building on sand. Weak foundations put the entire building at risk, no matter how solid the brickwork is. Fund protection is your foundation. It needs to be solid enough to support an active and, hopefully, successful trading portfolio. The question, therefore, is how do you ensure your funds are properly protected?
The first step is choosing a regulated broker. Every country has its own financial laws, so it makes sense to use brokers that are compliant with those applicable to your location. However, the mistake people often make here is ignoring overseas regulations. If you’re trading assets outside of your region, it’s important to have an international online CFD trading platform that’s regulated in multiple jurisdictions.
Multi-regulated platforms allow you to trade all types of instruments, including CFDs, with confidence from a variety of locations. What’s more, because these platforms operate across different regions, they have the necessary resources to facilitate safe trades in foreign markets. High-quality CFD trading platforms also ring-fence client funds.
This means your money is safe in the event of the broker going bankrupt. It also means your money can’t be used to fund a company’s daily operations.
Insurance Provides Assurance for Traders
Something else to look for when you’re choosing a trading platform is insurance. All regulated brokers are obligated to insure client funds up to a certain amount (depending on your location). However, some brokers go above and beyond. For example, ActivTrades offers enhanced insurance up to $1 million. It offers this level of insolvency insurance because it has a policy with Lloyd’s of London.
The final thing you want from a trading platform is transparency. A broker should be willing to open its books at any point to show that it’s running a legitimate business. Naturally, you want qualified people to perform the audits, so try to find out which accountancy firm a broker uses. Some of the names to look for are the Big Four accounting firms: PwC, Deloitte, KPMG, and Ernst & Young.
All of these top-tier accounting firms have decades of experience auditing major companies, including brokers. If a broker has its books in order, as well as the other measures we’ve highlighted, it’s probably a good place to trade. Trading is as much about protecting your money as trying to make more, so don’t make the mistake of ignoring insurance.
