The data is encrypted even by the game client itself. In other words, the game client at your computer will encrypt the log in info you put in and send the encrypted data to its server where only they can understand your login data.

Proxy merely help send the data faster.

Of course when you register for a proxy service, please use a different password from your game password. Game password should always be a special password where you never use it for other sites like forum and so on.