Penny Wise & Pound Foolish: Choosing the wrong FX broker

By Justin D. Hertzberg, CEO, ForestParkFX Around this time of year (and just about this time in every preceding year) tens of thousands of traders from around the world plot their course for the new year to come. Some do it in their minds; some more disciplined traders will actually keep a journal or a […]

Manhattan

By Justin D. Hertzberg, CEO, ForestParkFX

Around this time of year (and just about this time in every preceding year) tens of thousands of traders from around the world plot their course for the new year to come. Some do it in their minds; some more disciplined traders will actually keep a journal or a blotter and memorialize their thoughts and plans for conquering the FX world in 2016.

Often these thoughts will involve getting the right charting package or using this indicator or that EA or subscribing to this market analyst or trade copier program. There will be proclamations of strict risk/reward parameters and commitments to trade only certain pairs or times of day or chart patterns. There will be goals of going from demo to live, or making $X in profits or finally making trading a career instead of a hobby.

These New Year’s resolutions are being made right now.

And yet, on January 4, 2016 thousands of these bright-eyed and hopeful traders will begin the year on the wrong foot and unlikely to ever live up to their lofty resolutions. And why? Because in all their preparation and planning for the New Year, they were penny-wise and pound-foolish in selecting a broker for all the wrong reasons.

Capture
Justin Hertzberg, CEO, ForestParkFX

Often, the biggest misstep is making a selection on based upon saving a tenth of a pip here or there with tiny XYZ broker instead of working with a globally regulated, reputable and well capitalized broker with a history of service and stability. Other times it is because ABC broker will enable the trader to link an account to successful money managers – without really providing any meaningful disclosure as to who these managers are, where they are located, how long they have been trading, how much capital they manage, how they are compensated and a host of other pressing questions that need to be answered before one can make an informed decision.

Sometimes it is a decision to NOT go with an excellent broker because someone somewhere posted a negative review on some largely unmoderated forum where anyone and everyone can bash this broker with impunity and with no regard for the accuracy of the posting.

…..and what happens?

If you are lucky, nothing.

“You are fortunate enough to have opened an account with a brokerage run by decent and fair human beings. But for the THOUSANDS of traders who are penny-wise and pound-foolish, money will go into their brokerage account and never come out – perhaps because the broker manipulates spreads, slippage, latency or other factors.”

“Perhaps because the broker will simply not process their withdrawals (scary to think about, yet happens all the time); perhaps because they entrusted their account to some nameless, faceless manager who blew it up inside of two weeks. The reasons why you lost your money are many…and often have NOTHING to do with whether you are a decent trader” – Justin D. Hertzberg, CEO, ForestParkFX

As an introducing broker to FX traders from around the world, I speak with thousands of traders each year and do my best to counsel them on how to identify and choose a broker that best suits their trading, and always with an eye towards protecting their capital and ensuring a fair and honest trading experience with a professional broker.

As a general rule of thumb, I always advocate for traders to work with brokers supervised by regulators with a bite stronger than their bark. This typically includes brokers regulated by the NFA (US), FCA (UK) and ASIC (AU). It doesn’t mean that all such regulated brokers are good, And it doesn’t mean that brokers regulated by other jurisdictions are not good. But it should give you pause. Why are we all of a sudden seeing so many startup brokers in Cyprus, New Zealand, South Africa, the Caribbean and other jurisdictions?

Because it is EASIER for the broker to obtain registration as an FX broker in those jurisdictions.

Easier for them means less regulatory controls, restrictions, policies and procedures – all of which are designed to protect YOU as the trader.

There is obviously not the consideration. Others include looking at a broker’s capitalization, pricing model, execution model, liquidity sources, banking operations, service, support, platforms, technology and actual, firsthand experience with the principals and operations of a broker.

On the road to being a successful trader you will have to make many investment decisions. First and foremost of which should be placing your money and your trust in a broker that warrants it. For the tens of thousands of traders looking to start 2016 on the right foot, I encourage you to make the right brokerage selection in advance of your first trade. Don’t be penny-wise and pound-foolish with your hard-earned money.

Photograph: Downtown Manhattan, copyright Andrew Saks-McLeod

Read this next

Digital Assets

Masa and LayerZero: Bridging Blockchains for Data Sovereignty

Masa Network is poised to revolutionize the personal data landscape with its upcoming launch as a cross-chain platform, making it accessible on a variety of blockchains right from the start.

Digital Assets

Big Time Generates over $100M in Revenue since Preseason

Innovative game developer Big Time Studios announces that its highly anticipated free-to-play multiplayer action/MMO RPG Big Time, has generated $100M in revenue. According to the team, players transacted a total volume of over $230M, without selling a single token.

Digital Assets

Centralized exchanges are 10 times more popular than DEXs in Western Europe

Western European traders are found to prefer centralized exchanges over decentralized ones as CEX traffic outpaces DEXs by a factor of ten.

Market News

Stock Market Analysis: Is NVDA Losing Its Leadership?

Since the beginning of the week, the S&P 500 Index (US500) has seen a modest increase of about 0.58%, whereas NVDA’s share price has experienced a decline of approximately 3.8%. This recent divergence raises concerns among Nvidia stock investors — could it signify a loss of NVDA’s market leadership?

Industry News

ESG: Australian regulator wins first greenwashing court case against Vanguard

Vanguard admitted that a notable portion of the securities within both the Index and the Fund did not undergo the promised ESG scrutiny.

Fintech, Uncategorized

BitMEX integrates HALO from Solidus Labs for cross-market surveillance

“The recent approval of the Spot Bitcoin ETF has piqued the market’s interest. As a result of price volatility, the trading volumes for crypto derivatives have gone up substantially. HALO, with its advanced technology and crypto-native detection architecture, will enable BitMEX to smoothly and safely scale trade surveillance across its increased trading volumes and provide the necessary safeguards for new product launches.”

Reviews

IUX Broker Review

IUX, recently rebranded from IUX Markets, stands as a multi-asset Forex broker recognized for its regulatory compliance across various jurisdictions.

Industry News

Horizon Software rebrands to Horizon Trading Solutions

“Horizon Trading Solutions has seen accelerated global growth over the past year to meet the rising demand for our trading solutions and built-for-purpose technology offering. The choice to rebrand represents a key part of this development, while maintaining our heritage and history in the industry.”

Market News

USDJPY has surged to levels last witnessed in 2022. Should we consider opening a short position?

The recent resurgence of the US dollar has propelled USD/JPY to new heights, touching levels not seen since 2022. This surge comes against the backdrop of stable short-term yields and ongoing economic data that fails to signal a significant slowdown, prompting questions about the extent of current monetary easing measures.

<