How to choose a broker. The dilemma facing experienced traders.
A question popped into my mind and had me a little puzzled over the past few days. I felt like doing some trading again and found myself asking; “who will I trade with”? Whilst this may seem like an easy one to answer for some, remember this; I have been in the business for close […]
A question popped into my mind and had me a little puzzled over the past few days. I felt like doing some trading again and found myself asking; “who will I trade with”?
Whilst this may seem like an easy one to answer for some, remember this; I have been in the business for close to 10 years and have seen my fair share of the not so friendly side as well as the pumped up hype that is FX. Top it off with the fact that there are folks that have been in it for many more than that.
Why does this matter? Simple. Where do the experienced investors trade that are not sold by big promises, free this, zero spread that and have too much knowledge of the inner workings to stay far clear of, well; majority of the brokers out there.
A good friend of mine in a similar position seemed a little held back by answering this question and after some “come one mate… spill the beans” blurted out IB (Interactive Brokers).
Whilst most are familiar with the name, I have had my fair share of IB during my Commodity Warrants days in Sydney. We cleared all our options trades through IB at the time as well, it was cheap, super easy and that’s just what we did back then.
Interactive Brokers is perhaps a solid choice for a discerning trader, due to its capitalization. The National Futures Association (NFA) requires that all retail OTC FX brokerages in America have a minimum capital adequacy requirement of $20 million which is far in excess of all other requirements in all other jurisdictions, however despite this requirement appearing high, Interactive Brokers has maintained $84 million in capital reserves which it reports for regulatory purposes (as of FCM data report from CFTC 2014).
I obviously have an additional internal conflict which is being who I am with FinanceFeeds, my options quickly become limited.
Taking a step back, I thought there must be more folk out there like me. Albeit, Interactive Brokers are an obvious choice for many long term traders; the high minimum deposit for individual investors at 10k USD puts many out of the game.
Without insulting any of the many good retail brokers out there, some big names come to mind, which for years have been the go to; FXCM, Saxo, Oanda and the like.
But are they the only choices? Whilst maintaining a very good name in the industry and keeping things exceptionally clean, there ARE others out there.
However, does the fear of ultimately picking the wrong broker and consequences thereof, stand in our way of making a choice? We being those that know too much.
To my benefit, I have many friends in the industry that I’d happily trust to trade with and would be able to secure the best trading environment. But this still puzzles me.
What can be learned?
I’m going to take a marketing perspective on this and hopefully shed some light on this question.
Let’s first establish a few things.
- There are a number of top notch brokers out there that cater for all forms of traders from newbie through long term investors / traders.
- Names that were mentioned above are names that when the question of where to trade comes in the right circles, are thrown around.
- The traders / investors in question are a target audience with unique requirements and thus require different value propositions and marketing language to target versus a retail investor that never touched a platform in their lives.
Phew …. Glad that’s out the way.
What do investors like myself look for in a broker? Whilst I cannot speak for the wider audience, I think it is clear that longer term investors are looking for stability, security and absolutely no interference. The purer the offering the better.
Top that off with a well-known brand name and you have yourself names like listed above (amongst others).
But are there others out there? Yes, most certainly. The question to those out there that tick the boxes above need to ask themselves is how to target this audience.
Are you really that kind of broker?
If you are a broker and reading this and thinking- “I’m that kind of broker”, you really want to ask yourself if you truly are.
Long term, short term, HFTs, swing, scalpers; you name it traders, brokers want them. With the cost per acquisition sitting in the four-digit region, everyone wants deposits and volume.
But can you attract or directly target these traders? They are the ones that rarely click on banners, don’t particularly get excited by the “usual” offerings and from your home page can suss you out a mile away.
With a marketing and branding background, I can tell you that if you are wanting to target the investors above, you have a tough job ahead of you. You are competing with some big names.
Whilst they may not offer the best conditions and you possibly offer better; they have a name and tick the three boxes that many investors like myself tick.
On the flipside, this part of the market is not particularly competitive. “What he say!?”, yes, the fact that off the top of my head I cannot name more than five or six, is a problem for me and an opportunity for you.
It’s all in the offering and follow through.
If you are and feel strongly that you can cater for investors like me, then you need to step up your game.
Think outside the box. The devil is in the details and everything needs to be rock solid. If you are to compete with the big players and brands that get traders purely based on their good names (which without discounting, they earned); then you are going to need to ooze your message through every seam.
There are a few things that you need to be aware of;
- It’s a long term outlook. Your marketing efforts are going to take time as traditional channels may not be entirely effective for you.
- Word of mouth is and will always be your bread winner long term until you get to a point your “name” becomes a household name in the industry.
- Your message needs to be simple. Your value proposition needs to be simple. Your whole brokerage setup, character, pulse and offering needs to be simple.
I have a Japanese friend whom I’ve known for years. She has been in the Japanese business all this time and is one of the few people I know that has topped volume charts, deposits and investor numbers year after year, everywhere she has worked.
One thing she told me, and I’ll never forget is (referring to Japan) the big introducing brokers find you. You don’t find them. Think Chuck Norris.
This I know is also the case for China and much of the far east.
Eat sleep and breath your value.
You have to place, brand, eat, sleep and breathe your value proposition in order for you to tap into this market. The benefits of this long term are a niche group of customers in the FX industry.
The two cannot mix. A slip or any pretense will not work for this target audience. I am a firm believer having spent years debating this with industry executives. Even in a highly competitive space, there is always one that can come in late, carve a niche and conquer.
Pepperstone, was a great example of this. Whilst I cannot vouch for them or their business as never traded with them, the name says it all.
At first glance, Pepperstone reminds me of a challenging yet warm bottle of South Australian Shiraz with spicy black pepper top notes to enjoy with a good scotch fillet, garlic butter and fries.
Their offering was simple. They introduced us to Razor spreads (raw) topped off with a very fair trading commission and the promise of NO interference.
No bonus offers, no zero spread, no education, no signals just vanilla trading with cheap fees. The industry stood back to watch.
At their peak, they were the darlings of the industry in Australia, pumping volume most dreamed of at a time when most said there was no space for another broker.
Best yet, their team were one of the smallest in all of the industry.
Not everyone’s cup of tea.
Albeit, high deposits and volume, these long term professional investors are not every broker’s cup of tea.
They are just one of many niches that if you critically look at your business and offerings, you are able to find that there are more than one set of customer.
The more competitive the industry, the more it becomes imperative to find one’s niche at all costs, become the best at it and make sure you are in it for the long haul as it takes time to stand out.
I’m still looking for a broker to trade with and want to get some suggestions.
I can always call a friend but want to give everyone a shot. So if you can throw some names around in the comments of smaller boutique brokerages we can look at that would be appreciated.