Op-ed

When Is It Time to Move Away from Retail and Become Professional?

It is hard enough to produce a solid track record and generate consistent profits as an FX trader, so why

It is hard enough to produce a solid track record and to generate consistent profits as an FX trader, so why make it harder on yourself?

It’s my opinion that, for a long time, FX industry regulations were grossly inadequate, as the regulators seemed unprepared to protect its most vulnerable segment, the retail trader. When a novice trader opens a retail brokerage account, most, but not all, are unaware that their broker is on the other side of the trade and therefore 100% against them.

New traders are lured in with great advertising, incentives and false trust and are provided with massive (unrealistic) leverage causing the vulnerable trader to lose quicker. Across the globe, many of these retail brokers would utilize any, and all tactics to ensure that these traders, those new to the FX market, would end up losing and they (the retail broker) would ultimately benefit from those losses.

Richard Perona, VP of Institutional FX at Advanced Markets LLC
Richard Perona, VP of Institutional FX at Advanced Markets LLC

Some countries assigned specific regulators to the industry and have taken measures to attempt to keep the retail brokers in check, years of bad behavior warranted an intervention. In order to safeguard the interests of the retail trader interests and to ensure fair operations, regulators administered these basic changes:

  • Account leverage lowered to realistic levels
  • Mandated the provision of detailed reports on the counterparty to each client trade
  • Exercising best available price practice
  • Implementation of regular audits

A novice trader needs to learn how to trade. They should, therefore, start slowly and gradually formulate a strategy while trying to understand the market, and why it moves. This should entail:

  • Using an amount of investment that you can afford to lose
  • Utilizing low/ realistic leverage
  • Understanding different order types and time in force options (TP / SL)
  • Formulate a strategy and implement it slowly
  • Practice patience and discipline

Once the trader feels that they can comfortably navigate through the FX market and that they have come up with a solid, workable strategy, the natural progression should be to transition toward the next level of trading partner, leaving behind the broker that is trading against them. This means finding a broker with direct access to the primary markets. Trader’s can access these primary markets by onboarding with a true Prime of Prime. In my work experience, when speaking with a trader who is thinking about making the jump from a retail broker to an institutional prime of prime, I find them a bit apprehensive. I believe they are hesitant of the natural progression because they believe that they cannot qualify, or that they are simply unsure as to the difference between the two types of broker.

Some of the major differences include:

  1. The counterparty to all trades will be global banks and large financial institutions (not the broker)
    (So, what is the benefit? I think spelling it out is more direct. There is always the worry of conflict interest with having a retail broker as your counterparty – Bottom line, You lose, they win)
  2. Smaller commissions and spreads
  3. Net Open Positions (no swaps on hedges)
  4. Account leverage tailored to your particular trading needs

These four qualities should be more than enough reason for a trader to run towards a true prime of prime. If you are ready to progress to the next level and move past a broker who cannot allow you to make consistent money, (as it will bankrupt them), then take a look at how.

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To qualify as Elected Professional under UK FCA you will need:

– Elective Professional (2 out of 3 need to be applicable):

  • The prospective client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
  • The size of the prospective client’s financial instrument portfolio, defined as including cash deposit and financial instruments, exceeds EUR500,000;
  • (*Individuals and Corporates) The prospective client works or has worked in the financial sector for at least one year in a professional position, that requires knowledge of the transactions or services envisaged, expertise, experience and knowledge.

To qualify as wholesale under Australia ASIC, you will need:

– Price or value test (500k AUD deposit):

To qualify under this criteria, the initial deposit into your account with your broker will need to be $500,000 AUD or greater.

So, why settle for a broker who does not have your best interests at heart and is literally benefitting from your losses? It may be time to trade in a friendlier environment, one where your broker wants you to succeed rather than fail.

 

Richard Perona, VP of Institutional FX at Advanced Markets LLC

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