How Can I Ever Trust My Broker Again?

Unless you've been hiding under a rock for the last three weeks, you already know that the SNB unleashed hell.

(Or $*&@$*! Alpari!)

In case you’ve been hiding under a rock for the last three weeks, you already know that the Swiss National Bank unleashed the Twelve Horsemen Angels of the Apocalypse onto the currency markets. These 12 Horsemen nearly bankrupted FXCM, cost Citibank over $150 million in losses, margin called an entire broker (Alpari), and generally just peeved us all off.

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Besides ranking as the worst human beings on the planet, Swiss Central Bankers are now the biggest liars, too. Just weeks (or even days) after reaffirming their commitment to the “floor” for the EUR/CHF, they pulled the rug out from under us all, and a lot of people lost a lot of money. It occurs to me that there might have been a better way to go about this. But far be it from a central banker to come up with such a plan.

In the face of such central bank shenanigans, how can you ever trust a broker again?

Why would you put ANY money at ANY broker?

Here are some things that you can do to protect yourself:

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1) Never trade anything that is a “sure thing,” a “lock,” or “guaranteed money because the central bank has set the exchange rate at X.” Central Banks are the breeding ground for unsound fiscal policy making, and the root of all evil, and probably the reason for the recent outbreak of measles at Disneyland. I repeat: Do not get involved in any “sure thing” trade ideas. Do not “set and forget” your “100% guaranteed trade.”

2) Do not put all your trading capital with one broker. Mix it up. Find two or three brokers you like and trade with them. Or talk to a company like Forest Park FX that was created for the sole purpose of recommending the right broker for you. They can help you find out if your current broker is solvent and stable.

3) Trade with a broker that is big, that is publicly traded, and has a history of NOT pursuing negative balances against traders. FXCM is big. They are a public company. They were able to borrow money to survive, and they are doing the right thing by their customers. I have said it before and I will say it again, never bet against Drew Niv and FXCM. They are not perfect (no broker is) but they made it through a really bad time, because they run a good ship.

4) Consider reducing your trade size substantially. What I’ve been doing is to take my first FX position with 3 micro lots per $10,000 in the trading account, and then if I add to the trade, I go 10 times bigger, with a second trade size of 3 mini lots. That way, I can still make money. But I risk very little at the start of the trade. And I get out fast after I increase my trade size. Get in, get money, get out. That’s a good way to stay in the game.

If you do the above, you’re going to be ok. 2015 is shaping up to be a very volatile, and less-predictable than usual year. These are the years where you either make a ton of money or (if you trade too big, or don’t set yourself up right) lose a shiz ton of money. So be careful, friends, and stay in touch!

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