Be Wary of Your Forex Broker
Your forex broker is not necessarily their friend! There is a class of broker known as a market maker and you need to be wary of them. The market maker earns their money by a commission which is fair enough but also by taking the opposite side of your trade. That means when you have a losing trade they have a winning one.
With this brokers it is simply not in their best interests that you have lots of winning trades because it will be costing them money.
To make matters worse they have provided your trading platform and can see any notations you have placed on your chart.
It’s a bit like playing cards with one player getting to see the other player’s hand. It’s not really fair at all.
You Have Been Stopped-Out
Imagine you have analysed the market correctly, placed your order and stop-loss position then you see a temporary and somewhat wild fluctuation in the market. Your position has been stopped out and then the market takes off just like you had expected it would, with you sitting on the sidelines wondering what just happened.
It sounds outrageous, but it happened to me many times when I first started to trade forex. What seemed like reasonable stops based on past market behavior were being taken out. I tried taking this issue up with my broker but was always told the same thing: “There was unusual volatility in the market at that time”.
The last straw for me was when a sensibly placed stop wasn’t filled when it should have been and was left to run almost an extra 20 pips. That sort of slippage is inexcusable and should never happen. I closed my account that day and went on a search for a new broker.
An ECN Forex Brokers
There is another type of forex broker called an ECN broker. ECN stands for Electronic Currency Network, which means your broker makes money by providing a platform to enter your trades into the network where buy trades are matched up with sell trades and vice-versa.
The ECN broker has no interest in manipulating the market against you, they merely want you to trade with them.
I have heard of hybrid brokers that use the electronic currency network but are also market makers. Again I recommend that you steer clear of them and seek out a true ECN broker.
Check out the forex forums for reviews and recommendations about prospective ECN brokers. You want your broker to:
- Offer competitive spreads. Most reliable brokers publish their average spreads so you can make comparisons between the various brokerage firms.
- Offer trading material and resources to assist you with the right way to enter and exit your trades.
- You also want to know how easy it is to get your money back and what fees are charged to access your profits.
Lastly test your new broker with a small amount of money. Try them out with some mini sized lots and see how they perform for you. If all looks good then you can add some more money to your account and trade full-sized lots until you have developed some experience with your broker.
Your broker needs to be worthy of your trust and the last thing you need to worry about it. Happy Trading!
Written by: Bruce G Wilson