Broker Complaints …Get over it!

I am breaking one of my New Year’s resolutions to not spend time and post anything on a bulletin board. After a lousy day in the market I decided to see what’s going on at “the factory” and all I see is whining and crying over how brokers are screwing their clients. This will be considered a rant by many but I’ll feel better when it’s over. You may not have the same experience. For the record I have no financial affiliation with any broker. I have 2 accounts with very large brokers.

I feel slightly qualified to speak on the subject because I was a professional market maker in the spot physical electricity market (like Enron but less evil) and the electronic electricity futures market.

Electricity, like any other commodity can be volatile at times. As a market maker I had a right and an obligation to both show a bid/ask and to protect and grow my company’s assets. In times of volatility I absolutely raised the spread to reflect the market uncertainty and discourage potential traders from doing business with me. If they were desperate and needed the power then I would pass on the risk associated with increased volatility to them and not me. A wide spread that turns your stomach is your broker sending you a subtle message that he is currently not interested in your business. If you choose to trade anyway and then badmouth your broker on Forex Factory then you are mentally challenged and should seek another form of entertainment.

Tight, variable spreads are all the rage now. Somehow many have overlooked the “variable” part. I hear it all the time from the people I trade with. “You paid 4 pips for the Pound, are you nuts? I can get in for 2 pips.” Yes, I do pay 4 pips for the Pound and I pay it whenever I want to trade day or night news or no news. Tight spreads work well in quiet markets. But, here’s the rub, we all seek volatility and movement and that is exactly when your broker widens the spread.

News trading died about 2 years ago when brokers stopped guaranteeing their stoplosses. They were losing their shirts by upholding their promise. One by one they all folded and sent letters to their clients saying that they could no longer stay financially solvent by honoring prices that did not exist. I personally know several “big time” traders, one of whom many of you hold in high regards, that haven’t traded successfully since those days of guaranteed price fills and free money. While I don’t want to defend brokers, they are in this business for the same reason you are; to make money and feed their families. I think they have every right to do so.

If you are trading Forex for the thrill of a quick score on an unpredictable news event you would be better off going to casino where you can at least get a free drink. News trading looks amazing on paper but as you will soon find out, it rarely matches up with reality. My personal trading vastly improved when I stopped looking at the econ calendar altogether. That’s right, I never, ever look at the calendar. I trade my technical signals and if I’m in front of a release and it goes my way then I have a good day. If not, I’m stopped out and that happens all the time in real life trading.

You can call my broker(s) a “bucket shop” if you want. I don’t care who takes the other side of my trade as long as I am on the side my system told me to be on. Brokers manage their inventory by taking the other side of your trade and by various hedging techniques. They deal with larger entities as necessary to maintain their own VAR (Value At Risk). I can’t help but smile every time someone falsely believes that their broker passed on their mini-lot trade to the mysterious and undefined “Interbank” where they receive a fair price. If you think JP Morgan or Deutsche Bank has time to put aside their billion dollar trading operations to take the other side of your trade then again, you’re mentally challenged. Your variable spread broker passes your mini-lot to a “liquidity provider” and he takes the other side of your position long before it gets to the banks. And, guess what? He buckets all of your little trades together! All you have effectively done is add another middle man to the process. Trust me, everyone is getting a piece of your pie and the more fingers there are in the pie, the bigger the pie has to be to feed everyone.

Maybe brokers are evil but let’s face the cold hard facts. If you want to trade Forex, you need a broker. No one forces you to participate in this market. You and you alone make the decision to buy or sell. When you lose it is your fault, not that of your broker. They only make the game possible, you chose to play. I learned this lesson the hard way years ago in the stock options market: I thought the floor traders were out to get me. The sooner you focus internally on the matters of discipline, risk, position sizing and lastly, a decent system the sooner you’ll become a successful trader and the less time you’ll have to gripe about your broker and spending learning systems with names like “firebird” and “phoenix”.

Best regards and happy trading,

Phil McGrew

Phil,

I don't really agree with everything that you said, but in general you are exactly right about the attitude we must have.

There is WAY to much blame, and not enough discussion on how to be successful.

Trading is a business with high risk. All should shoulder their own responsibility on their trades. Then they can pay attention to what really counts. Learning the above.


Thanks for your insights

DC

AMEN

Thanks for brightening up my day brother! Luck be with you!

I also agree Phil. Gave me a smile to see someone actually write it.

I agree that viewing the calendar is a red-herring for most technical traders and I stopped viewing it altogether a while ago. If you day trade then perhaps you might need it, but if you position trade then it makes no real difference really.

Rob Booker said that some brokers stopped guaranteeing stops for news trading about 2 years ago, Aug 04 for FXCM after NFP.

I think you're spot-on for the most part, Phil.

Some interesting thoughts Phil. I dont agree with all of it, but very well written nonetheless.

I dont think you'll find many serious traders begrudging brokers widening spreads during volatile periods etc. It's all part of the business. I also, dont think most serious traders whine about lossses, they are after all, just a cost to our business. Most people's grievance tends to be with the brokers/spread betting companies that are not content with widening spreads and/or taking commissions but take it to a whole new level by stop hunting, rejecting trades for perpetual winners etc.

As a professional trader, I dont really care so much about losses, size of spreads etc, however I do demand an honest broker who will honour the prices he quotes and not spike prices simply to knock out persistent winners' positions. That's why, I am happy to stay with my current broker despite wider spreads than others and slightly higher commissions.

Imagine a world without brokers.

LOL

I cant add much to all that has been said - other than I agree totally with what you have said, Phil.

One point I would add, rather than correct - is the issue of accepting trades.

I have learnt a lesson recently, with a UK Spread Betting firm.

After 6 months of full-time trading, and a steadily increasing equity curve (which Phil himself can verify)- I suddenly found that their web platform was pausing 15 seconds or more AFTER I had hit the buy/sell button. I kept a log of every occasion - and found that in over 85% of situations - the price I was filled at would be the one I asked for if the market had moved, lets say, 15 pips against me. If the market moved the same 15 pips in my favour - I received a "price no longer valid" response.

I guess what I am saying here - is that I dont believe these guys bust a gut to blow you out on individual trades - but I DO believe that smaller organisations are there to let you trade whilst you are learning - trading too much %E and believing a million dollars await you - and that those same small organisations will start to drop hints that they dont want you when you start showing a steady and long lasting and succesful record.

Of course I have closed my account - and there was very little in the way of persuasion from them for me to stay.

Cheers,
Dave

My broker have never slipped me. What he does is CHARGE me slippage.
Slippage is a cost passed onto you by your broker mostly around news time.

Ask your broker for a "price list" around news time and he will more than likely tell you that costs go up during news times, maybe 20-40 pips.

boycie.

That lengthy explaination doesn't really address what people are complaining about. Everyone knows extreme volatility yadaa yadaa. What people are complaining about is outrageous spreads when there is no volatility. These retail brokers are 10+ pips even when there is no price movement and the spreads are a still 0-1 on the ECNs the whole time. This is happening on even the very mild unimportant news events.

Maybe the market is trying to tell you something...

Got to ask anyone know ??

FXCM they make there money from the 5pip GBPUSD Spread, do they really or do they make money from me losing money ?? If I start making ALOT will they cancel my account ?? Any experience ??

Starting to make money slowly ( long road hey )

Don't plan to leave to much in my account really, and wouldn't trust a spread betting site in the first place.

Most of my profits are from a FXCM delay, and computer gamer reflex's around news times so I like my Broker

But on a account I'm up £250 area in 2 months, the Spreads cost me £400+ easy. If I was working on 2pip GBP spreads I'd be flying, but never mind

Well, not the market. The market hasn't really changed the retail brokers have. I opened up a new account this week with a different outfit which is ECNish.

I wouldn't blame them if they were upfront about it like a casino. Basically they don't want your business if you count cards. That's fine, I can get an account elsewhere in a snap. Who can complain about that? I get it, the retail brokers want to make more money. That's fine. The complaints are that they explain it away as volatility and anyone can look on dukascopy (or a dozen other places) and the tick graph and see that spreads are remaining tight.

If you open an account with a large, reputable broker you will get a fixed spread and experience little to no slippage.

If you open an account at Joe's Forex and Nail Salon and you are willing to pay for slippage then you deserve what you get.

Phil

Phil ! come on down! your the next contestant on.........................
NAME THAT BROKER ! ! !

I have accounts at Gain Capital and GFT Forex. No complaints about either.

Dead on Keys !!

Stick to your guns because you are right. Call it what it is. The "markets" aren't dicatating those spreads, the brokers and/or their liquidity providers are. END OF STORY.

I don't understand why long term or swing technical traders even participate in this conversation. It has nothing to do with them. This slippage and widened spread discussion is only relevant for people who play volatility. All the data players are doing is communicating to help each other find the best situation for their strategy.

You don't see football players trying to design tennis raquets !!!

True, but you don't see many 50-year olds taking up football as a sport. Point is...what works one day may not work the next. If the brokers are wising up to the fact that volatility in their liquidity provider eats away at their profit...why should the offer reasonable spreads? If it keeps the birds from feeding when there isn't enough seed to go around, then they have a right to operate in the fashion.

Let's put it this way...lets say you open up a retail shop that sells wrenches. If your wrench vendor raises prices...what do you do? Well, if you wanted to stay in business, you better damned well raise your prices. Now, what do you think your customers are going to say about that? Well, they'll whine and try to go somewhere else...well, guess what...if that vendor raised prices across the board, EVERY retailer would have raised prices and you'd still be competitive. So perhaps, brokers are just doing what makes economic sense for them.

There aren't a lot of conspiracies here...brokers are adapting to make money. If you find a broker that hasn't gotten the memo yet, then trust me...they will in due time.

If you want to jump brokers, that's fine...but that doesn't make it a conspiracy. Hell, it doesn't even make your previous broker a bad broker. It just makes them less competitive in the market until the rest of the market catches up.

I am by no means loyal to any broker...but the one thing that I DO try to avoid doing, merely because I think it's a waste of time, is complain about the broker situation. I'll gladly accept suggestions on who's a good broker...but I don't see a reason to harp on a broker unless it's absolutely warranted. Let's just say, the whole news/volatility/widened spreads/widened stops/slippage-thing...it's just SOOO 3 months ago. I like burger's suggestion in another thread...let's see what we can do to price the action in (or suggest other brokers that might be better suited). But the last thing I want to hear is "what's up with Oanda? did anyone see those wide spreads during NFP?" or my personal-fav "damn, the price spiked on FXCM during big B's speech, yo, and I like totally got stop-hunted...FXCM sucks!!"...no offense, because I know everyone likes to complain a little...but SHITAKE MUSHROOMS folks...stop the insanity and find a new past time.

Please, no one on this thread get offended...I'm not implying anything. I just want to suggest that perhaps system adjustments need to be made rather than trying to solve the Poincare Conjecture-like problem of how brokers justify anything. Everyone knows its true, but it's quite difficult to prove with certainty...AND there isn't going to be a $1,000,000 prize for you to reject if you DO prove it.

mrmikal,


You have hit the nail on the head. Your explanations were brilliant!

If you don't like your broker, move to a reputable one. If you don't like 11 pip spreads, go to a fixed spread broker where the spread never changes. If you don't like slippage go to a larger broker who has the liquidity to trade against you.

If i were a broker and you were dumb enough to pay me 11 pips I wouldn't hesitate to take your money. 90% of traders lose money and you are going to pay me 11 pips? Sign me up!

Phil

Whether you have 1 pip or 15 pips its all about entry and having trained over 200 traders and trading professionaly for 16 years. You can give me any spread and i can make money in forex. Of course the wider the spread the longer the hold but all an all the only ones whom say spread are consisently losing traders looking to satisfy blame on someone rather than their own inabitlites. Let's grow up about spread and learn how to trade.