FX Trading is a business: If you want results, act like a professional. Go Prime of Prime!

Trading the markets is a business. It is no wonder that the ones that see it as gambling are willing to trade against the house, but retail traders that want results, they must act like professionals.

By Richard Perona, Vice President of Institutional Sales at Advanced Markets

The FX industry had its big break with retail traders in the late 90s as access to the internet spread across the globe.

In a bid to compete for new traders, nothing was off-limits as brokers lured everyone and anyone with aggressive advertising, incentives, and false trust, while almost setting them up for failure with extreme leverage by default.

While burning traders and their accounts should never be in the interest of an FX broker, this became common practice in the ‘early days’ – which lasted for years – because that kind of leverage and marketing improved their onboarding rates.

FX industry regulations were grossly inadequate at the time as it usually happens in nascent industries, but it was the most vulnerable segment, the retail trader, that was hurt the most.

Key jurisdictions, namely the European Union (ESMA), the United Kingdom (FCA), and Australia (ASIC) have recently updated their rules for CFD products, with lower leverage caps and limits to marketing practices.

This, however, doesn’t protect retail traders from the b-book model, where brokers process their clients’ orders in-house and act as market makers.

The b-book broker executes trades internally and acts as a counterparty to his clients. In this model, the broker’s profit is equal to a trader’s loss.

This conflict of interest is usually kept from sight and retail traders happily open their accounts unaware they’re trading against the house.

A key change in the regulatory framework is the requirement of detailed reports on the counterparty to each client trade. This allows retail traders to know for a fact if their trading against the house or not.

That information can serve as a deal-breaker when opening an account with a broker. Rather than choosing a broker running a b-book model, traders can opt for trading firms offering DMA (direct market access): a true Prime of Prime, such as Advanced Markets.

Leaping from a retail broker to an institutional prime of prime is the natural progression of a trader. The counterparty to all trades will be global banks and large financial institutions and not the broker.

Trading the markets is a business. It is no wonder that the ones that see it as gambling are willing to trade against the house, but retail traders that want results, they must act like professionals.

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, then the initial deposit into your account with your broker will need to be $500,000 AUD or greater.

Trading is all about risk and reward. Trading against the house may well be regarded as a risk. A true Prime of Prime broker eliminates that risk. Then, it’s only up to you to reap the reward.

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