I'm breaking one of my New Year's resolutions to not spend time and post anything on a bulletin board. After a lousy day in the market I decided to find out what's going on at”the factory” and all I see is whining and crying over the way brokers are screwing their customers. This will be considered a rant by most but I will feel better when it's over. You might not have the experience. For the record I have no affiliation with any broker. I have 2 accounts with huge brokers.
I'm slightly qualified to speak on the subject because I had been a professional market maker at the area physical electricity market (like Enron but less wicked ) and the electronic electricity futures market.
Electricity, like any other commodity could be volatile at times. As a market maker I had a right and a duty to both show a bid/ask and to protect and grow my business's assets. In times of volatility I absolutely raised the spread to reflect the market uncertainty and dissuade prospective traders from doing business with me. If they were desperate and wanted that the power then I would pass on the risk associated with increased volatility into them and not me. A wide spread that turns your stomach is your broker sending you a subtle message that he is currently not interested in your business. If you choose to trade anyway and then badmouth your broker on forum then you're emotionally challenged and should seek another form of entertainment.
Tight, factor spreads are all the rage now. Somehow many have missed the”factor” part. I hear it all the time in the people I trade with. ”You paid 4 pips to the Pound, are you nuts? I am able to get in for 2 pips.” Yes, I really do pay 4 pips to the Pound and I pay it whenever I wish to exchange day or night news or no news. Spreads operate nicely in quiet markets. But, here's the rub, we all seek volatility and motion and that is exactly if your broker widens the spread.
News trading expired about 2 years back when brokers stopped guaranteeing their stoplosses. They have been losing their shirts by imitating their promise. One by one they all folded and delivered letters to their customers saying that they could no more stay financially solvent by respecting prices that did not exist. I personally know several”big time” traders, one of whom many of you hold in high regard, that haven't traded successfully since these days of guaranteed price fills and free money. While I don't need to defend brokers, they're in this industry for the exact same reason you're; to earn money and feed their own families. I believe they have every right to do so.
If you are trading Forex for the thrill of a fast score on an unpredictable news occasion you would be better off visiting casino at which you can at least get a complimentary drink. News trading looks amazing on paper but as you will soon find out, it rarely matches up with reality. My personal trading vastly improved when I stopped looking at the econ calendar altogether. That's right, I never, ever look at the calendar. I exchange my own specialized signals and if I'm facing a release and it goes my way then I've a fantastic day. If not, I'm stopped out and that happens all the time in real-life trading.
You are able to call my broker(s) that a”bucket shop” if you would like. I don't care who takes another side of my trade as long as I'm on the side my system advised me to be on. Brokers handle their stock by taking another side of your commerce and by various hedging techniques. They deal with larger entities as required to keep their own VAR (Value at Risk). I can't help but smile every time somebody falsely believes that their broker passed on their mini-lot commerce to the mysterious and undefined”Interbank” in which they receive a fair price. If you believe JP Morgan or Deutsche Bank has the time to put aside their billion dollar trading operations to take another side of your trade then again, then you are mentally challenged. Your factor spread broker moves your mini-lot into a”liquidity supplier” and he takes another hand in your position long until it gets to the banks. And, guess what? He buckets all of your small trades together! All you've effectively done is put in a second middle man into the process. Trust me, everyone is getting a piece of your dish as well as the more fingers you will find at the dish, the bigger the pie has to be on feed everyone.
Maybe brokers are wicked but let us face the cold hard facts. If you wish to trade Forex, you will need a broker. No one forces you to participate in this market. You and you alone make the decision to buy or sell. When you lose it is your fault, not that of your broker. They simply make the game potential, you opted to play. I discovered this lesson the hard way years ago in the stock options market: I thought the floor traders were out to get me. The sooner you focus internally on the matters of discipline, risk, position sizing and finally, a nice system the sooner you are going to grow to be a successful trader and the less time you are going to need to worry about your broker and spending learning systems with names like”firebird” and”phoenix”.
Best regards and happy trading,
Phil McGrew