Are All Forex Brokers on Our Side?

17 February 2016, 14:40
Sherif Hasan

What we see more than often these days are Forex brokers offering advice and trading tips. They are beamed to us in forms of videos or written educational content that looks pretty good to a naked eye. On the odd occasion, we could even receive emails that provide fundamental or technical research which is backed up with historical facts and figures, further pushing the argument towards taking a trade.

Unfortunately, trading success cannot be achieved by tips, low grade research or a piece of advice. They certainly create a snippet of understanding but in no way do they contribute fully to the cause.

On top of that, there are hidden agendas behind this ‘friendly’ attempt to educate and help traders. That is to make us trade more. The more we trade, the more income we provide for the broker but unfortunately, the more ‘friendly’ and helpful they seem the more traders fall for it.

It is crucial that traders do not take advice from Forex brokers or from any broker for that matter. The reason why is that brokers are not traders. If they were any good at it, they would not be brokers. Trading on advice from a broker is exactly the same as taking advice from a person we don’t know. It is very blind in nature and very risky in outcome.

Realistically the type of Forex broker that is most desirable should be the kind that will execute orders without any question. They should also be regulated and financially stable no matter the size of the company. A bigger company is no better than a small one and in any case; all bigger companies were small once.

The right broker should never offer advice; just ask a trader on a trading floor. They were all trained by the same person but they hardly ever offer advice to one another because they wish to rely on their own knowledge and risk appetite. The same should apply to all traders receiving advice from a broker. They do not know you or your trading style so even if the advice was 100% on the button, it may not be specific to you.

Spread width

This is a very competitive tool used in majority of marketing strategies. The general consensus amongst new traders seems to be ‘the lower the spread the better’ but the truth is that the spread width should not be given this high importance. If we are offered less that 5 pips on a major currency pair; that is ok. However, this only leaves the option of trading higher time frames where the spread won’t eat into our profit. Some may argue that higher time frames should only be used anyway but brokers take a completely different approach. Instead, they would like us to ‘day-trade’. Why? Because this way we trade more often and as we mentioned before – this is how we provide more income for them. If they decrease the spread, it increases the chances of us using smaller time frames thus increasing trading volume – a very simple but effective solution.

To summarise, there are plenty of tricks and marketing strategies that brokers use to invite us in. There are probably many traders that fall for this because as soon as they see the campaigns they buy into them. This is a sign of a successful marketing campaign but not a sign of a successful trader. However, to work with a good business partner (broker) we should always consider the long-term effect the partnership will have on us. Will it be beneficial or not? Fortunately, with a few careful steps and analysis based on our own research, we should be able to find a fruitful business partnership without any trouble.


Share it with friends: