How do I know that the broker will not use my money to do other things? Which Act outlines how the broker must handle our money? How often does the CFTC check brokers to make sure that they are conducting their business according to regulation. What happens it the broker goes bankrupt?
Also, how does forex actually work behind the scenes. Say I go long on AUD/USD, for 100K, does this mean that for my deposit of $1K, the broker will lend me enough USD to buy 100K AUD? Am I correct in my understanding that I pay back the broker what I borrowed in USD when I close my position? I borrow from the broker, but where does the broker get the money from? Also, theoretically, I can keep my position open for an eternity. Does this mean that the loan from the broker is essentially an interest only loan that you can theoretically never pay back? Also, why does the large banks not offer retail forex?
Also, what about CFD brokers who also do FX? When you trade with them, is it different from the other FX brokers in the sense you do not actually trade currency but rather contracts which bet on the movement of the currency. Who are the CFD providers? Is this always the broker? If so, why would a broker be willing to allow you to go long on say EUR/USD, when the market sentiment is clearly bearish for the USD and downward movement of the USD would cause them a loss that would probably exceed what they charged from you in the spread + commission?