Confessions of a Forex Trader – I HATE Changing Brokers

After yesterday’s SNB surprise monetary policy decision, major forex brokers around the world are having serious solvency issues. Unfortunately, bad trades coupled with 100:1 leverage became a recipe for disaster as client accounts went negative and now owe money that they probably can’t pay back. The largest and most well-known broker in the United States, $FXCM, is amongst this crowd and good for them. I have absolutely no love for $FXCM. While I don’t make broker recommendation, I discourage any trader who asks me about $FXCM from opening an account with them. I have firsthand experience and I know they are a piss poor operation.

brokerBut the hardest thing for a forex trader, besides trading strategy and consistent execution, is finding a good broker. A good broker is crucial for the success of all traders. I have had to do it 4 times in my 8 years trading forex. Knowing how hard it is, I decided to document my process the last time I switched brokers to help other traders find one that met their trading style criteria. In light of the eventual closing of some brokers due to the SNB surprise, I am reposting the article here in hopes of guiding traders to the decent forex brokers out there.

Again, I don’t make broker recommendations. Follow the process and do the work. You’ll be better for it. Please, also keep in mind that my decisions about a particular broker SHOULD NOT be your own. That’s not the point. You need to have a clear idea of what YOU need from a broker in order to be successful. What works for me won’t necessarily work for you. And, lastly, please don’t be offended if I didn’t like your broker. That’s not the point. It’s about the process in picking a broker that is right for YOU.

Disclaimer: The list of brokers below is 4 years old and some of them are no longer in operation. Good riddance to them too.

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I hate looking for a new broker. My word, it is exhausting. I remember my first broker experience and I remember reading Trading for a Living by Alexander Elder. Elder stresses that traders must control costs (one of the few factor we can control) and to change brokers if necessary to do so. Every trader is different so my main criteria for a broker is:

  • No slippage and if so, then be courteous enough to ask me if I want to continue on with a requoted price
  • No commission
  • Not a market maker
  • Offers GBP/USD, EUR/GBP AND GBP/AUD. I wanted to start trading the GBP/AUD but my former (and current) broker didn’t (don’t) offer it.

Spreads are not a huge deal for me. If you can deliver on the above, then I don’t mind paying for it (via higher spreads). Because trading with FXCM left me so scarred, I am very wary of the big bank market makers. However, with the new CFTC regulations, I can no longer rule them out as they will probably be the only ones left standing. Also, many smaller brokers are just introducing brokers to the market makers anyway so I may as well deal direct, if I must.

Day 1

My search started with a website that compares brokers. I found a great website in Forex Peace Army (FPA). You always have to take rating and reviews with a grain of salt and try to determine between real traders and the whiners. But it does help to have 2nd opinions as they certainly do help allay doubts and some uncertainties. Through this painstaking search I did find Zecco Forex (through the Google ad, I’ll admit lol). Since Stocktwits partners with Zecco and they met my above criteria, I decided to give their platform a try.

Days 2 & 3

After crawling FPA and checking out different brokers for a day, there had to be a better way. And there is now! I finally turned to Twitter. I have a wonderful crew of traders there so why not ask them? I did and got a slew of recommendations:

  • Advanced Markets
  • dbfx
  • Oanda
  • PFGBEST.com
  • MB Trading
  • Dukascopy
  • MIG Bank
  • InterbankFX
  • Interactive Brokers
  • thinkorswim
  • Forex.com
  • Saxo
  • twowayspreads.com
  • CitiFXPro

I traded with Forex.com early in my career – don’t like them. In my experience, they have a tendency to permanently widen your spreads once you are trading well. I have an account with InterbankFX already and not too crazy about MT4 (sorry folks). So that left me to judge the remaining brokers based on my criteria. (Most of the links are directly to the page that helped make my decision.)

  • Advanced Markets – They have commissions based on initial deposit (which is unfair in my opinion) and trading volume (which as a swing trader I won’t make the cut).
  • dbfx – Thanks to the reviews on FPA, it looks like dbfx works through FXCM. I LOOOATHE FXCM.
  • Oanda – They meet my criteria though they *may* be a market maker. And I can trade on the iPad?! Beautiful.
  • PFGBEST.com – I can’t find any information on their website about fees, spreads, or any other costs involved. That’s a big fail.
  • MB Trading – They have commissions. 4 different commissions to be exact. Too much nickel-and-diming for my taste.
  • Dukascopy – They have commissions based on initial deposit (which is unfair in my opinion) and trading volume (which as a swing trader I won’t make the cut).
  • MIG Bank – They have different leverage, margin requirements AND spreads based on your initial deposit. Too much differentiation for my liking.
  • Interactive Brokers – They charge a commission. But it seems fair so I am willing to give them a try. I’m not used to commissions in this market so I am biased against paying them. However, things are changing with the new CFTC regulations so maybe it’s an idea I should get used to. Plus, after researching so many brokers, it seems that commissions may actually be to my benefit.
  • thinkorswim – My equity trading friend complained about this platform just last week. Plus, I don’t understand their commission structure – too complicated.
  • Saxo – They have a required distance on your stops. Not too crucial for me, as I am not a scalper, but 25 pips minimum stop on my favorite pair is kind of a deal breaker for me.
  • twowayspreads.com – I just don’t get it. Are they a broker or a rebate program? Believe it or not, there are forex rebate programs out there. And I’m not going to figure it out with my money.
  • CitiFXPro – I researched them a couple years ago. I consider them a market maker. Plus, I wouldn’t bank with Citibank. There is no way I’ll trade with them.

Day 4

Having whittled away at this list, I tried out the platforms of those left standing via a demo account with each broker.

  • Interactive Brokers – YIKES! Where are the charts? So confusing as the platform allows one to trade stocks, futures, options. Too many options (no pun intended) for this simple forex girl.
  • Oanda – I like the platform. Not thrilled with the chart tools but I think I can work with it.
  • Zecco Forex – I love the access to all the different gold charts! Gold/EUR, Gold/GBP!!! That’s about it though. The charting tools here are even worse than Oanda. Plus, they are powered by Forex.com. But the gold charts do keep them in the running.

I plan on trying out these platforms for all of this week but I think I have made a decision.

Conclusion

I like things simple just like in my trading. When it starts to get complicated, whether it was the platform or the fees schedule, I bail. I will miss MGForex. Only time will tell if I made a good choice. If not, I will give Saxo and Advanced Markets another look. I’m not afraid to change brokers even if it is a painful process. As a trader, neither should you.

 

Originally posted on faithmight.com on September 13, 2010.

Read also:

SNB Rocks The Whole World (FaithMightFX)

Numerous FX Brokers Shutter After Suffering “Significant Losses” Following SNB Stunner (Zero Hedge)

 

Image credit

 

Mental Stops

Back on with Benzinga, I mentioned mental stops quite a bit in my segment. But mental stops are a topic that deserves a little more explanation than I gave on the show. We all know what stop orders are. If you don’t then stop reading now and read this. We call them hard stops. I’ve always used them in my trading. Always. Then some years ago, Raghee Horner said something about stops that really resonated with me.

“If your stops are not set, your broker will never know about them.”

While that statement did resonate with me, I didn’t really understand why she said it until recently. I believe the reason now is high frequency trading (HFT). Undoubtedly, there is HFT in the forex markets now too. If the broker-dealers can see your orders, you better believe the algos, black boxes, dark pools and other sinister machines see them too.  Sound trading plans, which dutifully included hard stops, have been chopped to death in these markets. And I’m not the only one who thinks so. Pro veteran trader Peter Brandt wrote about this some years ago and the change he made to mental stops in order to remain competitive. However, despite these pros’ thoughts, I still used hard stops in my trading. Using bracket orders (limit orders in which both or either the stop loss and target limit are set too),  stops were placed as soon as I entered a position and adjusted to break even once the trade was in the money.

stop sign
No matter the basis, use stops in your trading

This sounds like a sound and prudent strategy. However, it was not yielding the results that they once were. So, very recently, I made the move to mental stops as well. It wasn’t until the Benziga show appearance that I reflected on how this trading strategy is working for me and what it might mean for newer traders.

Using mental stops mandates a disciplined approach in your trading. That is why novice traders cannot use them. As a novice, one is training to be disciplined in developing a trading plan and system. Once that hurdle is crossed, the newbie is then training to properly execute that plan and manage the emotions and ego that comes with trading in the markets. The practice of determining risk and sticking to exits is learned very practically using stop and limit orders.

Until your trading psychology is tight, I do not think you can successfully employ mental stops. Again, if you are a novice trader or a trader struggling with your mental capital, use the hard stops. Using mental stops does not mean we are no longer using stops in our trading. On the contrary. If you use a mental stop, you already know the level at which your trading plan is wrong. It’s just not being telegraphed to the market. Rather, we want the market to move as it should without the temptation to run orders that the HFT ilk is fond of doing. Mark the stop loss level on your charts and develop a rule for when you will manually come out of the trade. Will you get out on a break of the level? On the close? After a couple hours? A couple days? You will need to make that determination way before you think about using a mental stop in your trade. Mental stops can only be utilized within a well-defined trading plan. Fail to plan and you ultimately have plans to blow up your account. Be smart.

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My Appearance on Benzinga’s #PreMarket Prep Show

I was back on last week with the guys at Benzinga’s #PreMarket Prep Show. I had a blast. Some highlights from our chat include:

  • The market reaction to recent UK news releases
  • How to trade this current selloff in the GBP
  • The use of stops in the current market environment
  • Interest rate expectations going into 2015

Listen to the full interview below.

What Is A Trading Style

A fellow trader asked:

what do u mean by style long term short term swing trade scalping ? 🙂

For me, trading style ultimately refers to preferred timeframes. Swing traders look at bigger timeframes, typically no less than a 4hour timeframe. A day trader will look at minute timeframes, typically no more than 60 minutes. Of course, the details vary from trader to trader.

A swing trader is comfortable holding a trade overnight and doesn’t want or need to be active in the markets every single day. A swing trader is looking to capture much larger profits on a given position. A day trader couldn’t conceive that. A scalper is very satisfied with smaller profit targets and only wants to be in a position for a few minutes/hours.

Position sizing becomes interesting when you start to look at the 2 distinct styles. Swing traders will typically scale into (and out of) a position to take advantage of the best price the market is giving. Because we are in a position for several days, swing traders take advantage of a market action that provides multiple optimal price points. Scalpers tend to trade their entire position size because they expect to exit the position relatively quickly. So in order to get their desired reward, they are willing to put on their entire position. It seems risky to a swing trader but holding a position for several days seems very risky to a day trader. It’s all about style.

A scalper and swing trader could employ the same trading strategy (Fibs, pivots, support & resistance) but their styles will have very different outcomes. Figure out and trade your style. Most traders pick one. Some traders can trade both ways. Know what works for your personality and lifestyle. Then the hard part: trade thyself.

21st Century MegaTrends

I’ve often thought that the method by which we defined employment was no longer adequate. How do you explain slightly increasing consumer spending with the labor participation rate falling here in the US? Many of us are creating are our own opportunities and, thus, creating smaller enterprises to do so. I believe the many people leaving the traditional labor market (measured by our unemployment rate) are becoming entrepreneurs. Whether the title is self-employed, freelancer, or sole proprietor, many people are making money working with other companies rather than for those companies. Clem Sunter explains it so well in this interview last week at the Private Equity in Southern Africa Conference in Spier, Stellenbosch, South Africa. Worth a listen on 3 megatrends playing out right now: the aging of the world, increased natural disasters, and the rise of entrepreneurs. I’ll have to pick up the book.

Watch VIDEO: Clem Sunter on the Pursuit of Entrepreneurship; February 2014 (SAVCA)

Happy 2013

Sterling leaves 2012 with its larger trends still very much in play. Of course, the $GBPUSD is the outlier as the USD enters 2013 embroiled in political rubbish. However, all the pairs highlighted in November 2012 enter 2013 with the long term trends still largely in play.

  1. GBPAUD False Break Short-lived
joypeace
Happy 2013!

Summer Season

Spring was hectic. This year I was School Site Council Chair, PTA Secretary, and a GATE parent volunteer. I managed to teach 2 classes at the art college. The big kids eeked out 2 activites each over the course of 3 months. The baby started school for the very first time complete with her first extracurricular activity too. Hubby and I did a high five after the last ballet recital. The school year is officially over! So happy for the kids because it has been a great year. Lots of growth in us this year.

I say all that because it’s no surprise that this hectic schedule has forced me to trade slow. Slow and deliberate. More so than I ever have. And I found that there is a peace in not rushing trades. Trades are now limit orders triggered by my rules. And once set, I am free to watch the market however I choose: at my computer, in a meeting, during the boy’s basketball practice or the girl’s art class.

The high-energy of active day trading has very little appeal anymore. Instead, checking price becomes a check on the chart rather than a check on my trades. That subtly in grammar is also the subtly in psychology that has really helped my trading. The chart is a 3rd person. My trade is very personal and very 1st person. Personal matters tend to be emotional whereas we can all can detach from a 3rd party’s issues because they are not our own. As a trader, markets work when it becomes less about me and more about it.

The timing of my slower trading is not lost on me. The kids are back home full time. The whirlwind of winding up a school year is one I more appreciate now as a teacher and parent than when I was a student. The seasons have changed and, quite naturally, my trading changed with it. Trading is certainly a marathon, not a sprint. If you are in it for the quick thrills you probably can’t stay at it long enough to truly be rewarded. The longer I do this the more I understand that. Now I have entered a season in which I am truly living that out.

TRADE SLOW — my new mantra.

Why I do what I do how I do it 🙂

Strong USD, Strong GBP

There is a new theme emerging with the USD BREAKOUT this week. Everything is weak against USD. $GBPUSD has fallen over 650 pips in 4 weeks. It ended last week on a technical break of the 61.8% Fibonacci retracement level of its entire rally off the January 2012 lows. That was the last defense for bulls though their case was lost with price action below 1.60 for 2 weeks now. However bearish cable may be this does not at all roll neatly into a weak sterling story.

On the contrary, sterling is killing almost everything else. GBP is at multi-year highs against the euro. No secret there as to why. But the commodity dollars are also weakening tremendously against sterling on broad-based weakness in commodities. The strong USD combined with slowing Chinese growth is looking to make commodity weakness a new trend in the short-term.

When trading these markets, timing is crucial. The reason for the choppy consolidation around 1.60 in $GBPAUD and $GBPCAD is due to the sterling weakness in $GBPUSD and general GBP strength in $EURGBP and $GBPNZD. The EURGBP close below 0.80 signals more GBP strength; even as the $GBPUSD close below 1.5750 signals more GBP weakness there. The correlation is ironic. But price action is truth. The strong USD — strong GBP theme bears paying attention to as we head into summer trading.

Timing Is The Only Thing

Too many people say “I was too early on that one” to reassure themselves that they were right after all. The bottom line, though, is: if you didn’t make money, you weren’t right. So stop lying to yourself and work on your timing!

Great read over at Richard Todd’s blog on timing. Timing is something I strive to improve upon every time I’m in the market. I realized early in my trading that the entry of a trade is just as important as the exit. I personally feel it is more important. Todd’s post got me thinking about what it is I do to improve the timing in my trading.

  1. Use tighter stops. This is a recent change I made about a year ago. I know it is very counterintuitive and even ill-advised. But tight stops don’t allow you to be lazy when entering markets. There can’t be any “Oh I’ll just get in right here.” There must be a reason for every trade and that reason is your price. A trade is triggered because price has reacted a certain way at a specific chart level. It is at that level where we would love to get in at. It is the level that will maximize our profitability. An early entry is too impatient. Impatience is never a good way to trade. A late entry is a missed entry. Missed trades simply don’t pay which can be okay but refer to the above quote.
  2. Use limit orders. Trading live in the market can be exhilarating and boring. Both environments have positives and negatives but they have one thing in common. They both affect timing. In a volatile market, some traders get an itchy finger pulling triggers as fast as the market can oscillate. In a slow market, impatience rears as a trader enters a trade just to trade. Using orders allows me to time my entries to a certain extent as I let the market come to me. If the market never comes to me, then it’s time for a new setup and a new trade. With capital preserved, I can go into that next trade with a clear head.
  3. Using profit targets. There is aplethora of literature out there about using stops. Far less is dedicated to using limit orders to set profit targets. Many traders will place a stop but never set a profit target. Without a hard profit target set, the trader may be away from the screens when the market finally does move in her direction. Or worse, the trader hesitates, or simply refuses, to take profits off the table. Use hard (tight) stops. And use hard targets.

Todd says timing is everything. I agree, and take it further. Timing is the only thing.

Source: Timing Is Everything (blog.richardtodd.name)