Having been a Forex trader for years, I have found that partnering with a reliable broker is of the utmost importance.
You see, after getting a good solid education on how to trade the Forex market, your next step would be to open an account and start trading.
I have compiled a list of 9 challenges traders face when choosing a reliable broker to open an account. Are here:
1) “I feel like my broker is a market maker and is trading against me”
We have all been there before. You set up a trade, place your targets and stops, and get ready to rock and roll. Unfortunately, the trade does not go his way. It begins to slowly approach your stop loss. As he flirts dangerously close to your stop, you breathe a sigh of relief when he appears to be backing away.
However, to your horror, it suddenly tops out, takes you out of the trade, makes a deadly reversal, and continues moving in the direction of your profit target. Sounds familiar doesn’t it?
This folks, is a reality in the forex brokerage business. Many brokers operate a DEALING DESK, which simply means that they also trade to speculate for profit. Unfortunately, this sometimes means transacting against you, the retailer.
2) “Slippage is a common occurrence. I hardly get the price I want”
Be careful when you are attracted to brokers that offer “1 pip spread or zero spread”. One of 2 things can happen:
– You have to pay a high commission on each trade.
– There will be many requotes
Do your own due diligence and read the fine print of the broker’s terms and conditions.
3) “I am concerned about the safety of my funds”
This is definitely high on the agenda for most, if not all, retailers. Unlike multibillion-dollar institutions that have endless cash at their disposal, many of us are operating on hard-earned money. It would be refreshing to come across a solid broker that offers segregated client accounts.
Does anyone remember the Refco debacle? They were at one point the largest broker in the world before filing for Chapter 11 bankruptcy in October 2005. Many people who opened accounts with them over the years are still struggling to get their money back.
4) “It is too difficult to fund my account”
While I agree that many structures must be put in place to verify the client and their background, there must be a limit. As a Forex trader and trainer, I have had my fair share of complaints from fellow students who complain that funding their account is too difficult.
To keep things clean and simple, your broker of choice should follow these 3 steps:
– Have strict Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols
– Verify the client’s background with a copy of the passport and proof of residence
– Provide a variety of financing methods for the merchant, for example, bank transfer, local deposits or credit card
Speed is also essential. Some brokers take more than a week or two to approve accounts; which makes one confused as to whether it is a case of strict regulation or pure inefficiency.
5) “Customer service has a poor level of service”
This point really irritates most traders. At a minimum, your broker of choice MUST provide 24-hour customer support via a live chat feature. If for some reason the live chat feature does not work, then backup support such as phone and email should be available.
The second step would be to provide prompt and professional help to traders.
Look, it’s YOUR company (I’m talking to the telesupport people in the brokers now). If you don’t know the answers to our questions, who would? Quick and competent responses coupled with prompt follow-up to client needs seem to be missing from some of the brokers I know today.
6) “I can only trade Forex and Commodities”
It has been a joy for me to see some of the students flourish and mature into astute investors. Some of them lament the fact that most of the brokers only offer forex and commodities like gold and silver to trade on their platform. Come to think of it, it sure would be nice if brokers offered a one stop shop for traders and investors to trade Forex, Bullion, CFDs, Stocks etc. Some do by the way; But they are few and far between.
Even if it’s not for trading, it would be nice to see the price of oil, gold, the dollar index, etc. in ONE platform to obtain a global perspective of world finances.
A student came up to me and said, “Man! If only my broker could let me trade Citigroup when I was below $1 last year! I could have made a killing!”
My response was, “Are you going to sit there and complain or are you going to find a broker that will let you do it?”
He got the picture! Not that it makes a difference in this article, but Citigroup stock price is just under $5 now 🙂
Bro, if you’re reading this article, I’m ready for dinner at El Bulli or The Fat Duck!
7) “I can only get low leverage”
This is going to be more of an issue if you select US based brokers. Many brokers are now “restricted” by regulatory bodies like the NFA and CFTC from offering LOWER leverage to retail traders. this is huge. If it happens, my bet is that there would be a MASS EXODUS of traders leaving the brokers that are based in the US.
Is high leverage good? My answer is Yes. But you HAVE to understand how to use it wisely. If you go for a broker that offers 10:1 leverage instead of 100:1 or 200:1, then be prepared to leave more margin on every trade.
Do yourself a favor today. Read about leverage and how to use it wisely to your advantage.
My favorite explanation for the term leverage is “do more with less.”
Is leverage a double-edged sword? Yes. So how would you reduce it to a single edged one?
Lean in a little closer. Press your ear against the computer screen.
(Yelling) “ALWAYS PUT A STOP LOSS!!!!!!!”
8) “My broker does not allow hedges”
Not that I advocate hedging, but it would be nice if your broker gave you the flexibility to do so. Again, brokers in the US won’t let you do this (don’t look at me. Check with the NFA). Some also have the FIFO rule, which means that you can only exit trades in the same sequence that you entered. What??!!
Now, with all those restrictions, it’s time to pack your bags!
9) “I must have different accounts if I want to operate with Micro, Mini and Standard accounts”
Oh puh-leeeeeease. Dear runners, why bother? The main job of a trader is to control risk. Why can’t we just have ONE account that allows us the flexibility to run 1 lot, 0.1 lot or 0.001 lot? Isn’t it exactly the same as having a standard account, a mini account and a micro account?
Wake up people!
So there you have it. The 9 challenges facing most, if not all, retailers. The big question is how would we overcome them? Easy. Choose a broker that counteracts ALL of the problems listed above.
Since I operate the largest Forex Academy in Asia, I have a fair number of brokers knocking on my door asking me to refer students to them.
I am careful about such practices; as it is my job to seek out the best brokers that HELP traders succeed instead of making their trading journey seemingly painful.
The only broker I found who is really on our side
For the past few months, I have had the pleasure of meeting a Forex broker called FXPrimus. Initially, I was under the impression that they were just “one of them”. However, on closer inspection of his business model, I am pleasantly surprised to find that they SOLVE ALL 9 challenges I just listed above. Very cool!
Some of its BEST features include:
1) Straight Through Processing (STP): They do NOT trade against their clients
2) Segregated client accounts in Tier 1 banks; which are independently managed by Turnstone Corporate (Mauritius) Limited – an industry first
3) Annual audits conducted by the world renowned firm, Ernst & Young
4) MT4 platform, the world’s preferred trading platform
5) Trade over 70 currency pairs AND instruments like bullion, oil and gas
6) Syariah Compliant Accounts
7) No requotes during normal market volatility
8) High leverage (up to 500:1)
9) Minimum financing as low as USD250
Try them. I am particularly pleased with the speed of execution. You can open a demo or real account from the link below.