Having been a Forex trader for years, I’ve found that it is of paramount importance to partner a reliable broker.
You see, after you get a good solid education on how to trade the Forex Market, your next step would be to open an account and start trading.
I’ve compiled a list of 9 challenges that we traders face when choosing a reliable broker to open an account. Here they are:
1) “I feel that my broker is a market maker and is trading against me”
We’ve all been there before. You set a trade up, place your targets and stops, and get ready to rock and roll. Unfortunately, the trade doesn’t go your way. It starts to inch closer to your stop loss. As it flirts dangerously close to your stop, you heave a sigh of relief when it appears to be reversing.
However, to your horror, it suddenly hits your stop, takes you out of the trade, makes a killer reversal and continues to move in the direction of your profit target! Sounds familiar doesn’t it?
This friends, is a reality in the Forex brokerage business. Many brokers operate a DEALING DESK which simply means they also trade to speculate for profits. Unfortunately, this sometimes means taking trades against you, the retail trader.
2) “Slippage is a common occurrence. I hardly get the price I want”
Do be careful when you are attracted to brokers that offer “1 pip spread or zero spread.” Either one of 2 things may occur:
– You have to pay a high commission on each trade
– There will be many requotes
Please do your own due diligence and read the fine print on the broker’s terms and conditions.
3) “I worry about the safety of my funds”
This is definitely high on the agenda of most if not all, retail traders. Unlike the billion dollar institutions which have endless cash at their disposal, many of us are trading with hard earned money. It would be refreshing to come across a solid broker which offers segregated client accounts.
Anyone remembers the Refco debacle? They were at one point the largest broker in the world before filing for Chapter 11 bankkruptcy in October 2005. Many people who opened accounts with them over the years are still finding it a challenge to get their money back.
4) “It’s too hard to fund my account”
While I agree that many structures need to be in place to check the customer and his/her background, there must be a limit. As a Forex trader and coach, I have had my fair share of grumbles from fellow students who complain that funding their account is just too difficult.
To keep things clean and simple, your broker-of-choice must follow these 3 steps:
– Have strict Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols
– Verify client background with copy of passport & proof of residence
– Provide a variety of funding methods for the trader, e.g. bank transfer, local deposits or credit card
Speed is also of the essence. Some brokers take more than a week or two to approve accounts; which makes one confused on whether its a case of strict regulation or pure inefficiency.
5) “The customer support has a bad level of service”
This point really riles up most traders. At the very least, your broker-of-choice MUST provide round-the-clock customer support through a live chat function. If for whatever reason, the live chat function is down, then back-up support like phone and email must be readily available.
The second step would be to provide prompt and professional help to the traders.
Look, it’s YOUR company (I’m talking to the tele-support 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 on the clients needs seem to be lacking in some of the brokers I know today.
6) “I can only trade Forex and basic commodities”
It has been a joy for me to see some of students blossom and mature into astute investors. Some of them have lament the fact that most brokers only offer currencies and basic commodities like gold and silver for trading on their platform. Come to think of it, it sure would be nice if brokers offer 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 sure would be nice to see the price of oil, gold, the dollar index etc on ONE platform to get a global perspective on world finance.
I’ve had one student come up to me and say “Man! If only my broker could let me trade Citigroup when it was below $1 last year! I could have made a killing!”
My response was, “Are you going to sit there and whine or find a broker which allows you to do so?”
He got the picture! Not that it makes a difference to this article, but the share price of Citigroup is just under $5 now:)
Bro, if you are reading this article, I am all ready for a dinner treat at El Bulli or The Fat Duck!
7) “I can only get low leverage”
This is going to be a bigger problem if you select brokers that are based in the US. Many brokers there are now “constrained” by regulatory bodies like the NFA and CFTC to offer LOWER leverage to the retail traders. This is huge. If it happens, my bet is that there would be a MASSIVE EXODUS of traders getting out of brokers which are based in the US.
Is high leverage good? My answer, is Yes. But you’ve GOT TO understand how to use it wisely. If you go with a broker that offers a leverage of 10:1 as opposed to 100:1 or 200:1, then get ready to put down more margin for each trade.
Do yourself a favour today. Go read up on Leverage and how to employ it wisely for your benefit.
My favourite explanation for the term leverage is “doing more with less.”
Is leverage a double-edged sword? Yes. So how would you reduce it to a single-edge one?
Lean a little closer. Press your ear to the computer screen.
(Shouting) “ALWAYS PUT A STOP LOSS!!!!!!”
8) “My broker doesn’t allow hedging”
Not that I advocate the method of hedging, but it would be good if your broker gives you the flexibility of doing so. Again, brokers in the US do not allow you to do so (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 you entered. What??!!
Now, with all that restrictions, time to pack your bags!
9) “I must have different accounts if I want to trade Micro, Mini and Standard accounts”
Oh puh-leeeeeeease. Dear brokers, why the hassle? The main job of a trader is to control risk. Why can’t we have just ONE account which allows us the flexibility to execute 1 lot, 0.1 lot or 0.001 lot? Isn’t that the exact same thing as having a standard account, a mini account and a micro account?
Wake up people!
So there you have it. The 9 challenges that most if not all, retail traders face. The bigger question is how would we overcome them? Simple. Choose a broker that counters ALL the problems listed above.
As I operate the largest Forex Academy in Asia, I do get my fair share of brokers knocking on my doors, asking me to refer students to them.
I am careful with such practices; as it is my job to source the best brokers out there who HELP traders succeed rather than make their trading journey a seemingly painful one.
The One Broker I’ve Found That Is Really On Our Side
Over the last couple of months, I’ve had the pleasure to be acquainted with a Forex broker called FXPrimus. Initially, I had the impression that they were just “one of them.” However, on closer inspection on their business model, I am pleasantly surprised to find out that they SOLVE ALL 9 of the challenges that I have just listed above. Pretty cool!
Some of their BEST features include:
1) Straight Through Processing (STP) – they DO NOT trade against their clients
2) Segregated client accounts at Tier 1 banks; which are independently Administered by Turnstone Corporate (Mauritius) Limited – An Industry First
3) Annual audits performed by world-renowned firm, Ernst & Young
4) MT4 platform, the most preferred trading platform worldwide
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 funding as low as USD250
Give them a try. I am particularly pleased at the speed of execution. You can open a demo or live account from the link below.