Thursday, 15 September 2016

Is Trading a Con?


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For this blog post I am going to focus on brokers. I get at least one email per week and at least one comment on the YouTube channel per week telling me that brokers ‘rig’ the market and trading is a con.

So is it a con? 

Well, the short answer is no, it is not a con!

First of all, I’m going to focus on proper, regulated brokers here. I am not talking about brokers with PO Box addresses and headquarters in places you struggle to pronounce. If you are using those sorts of brokers, then the hard truth is that you should have done your research before committing capital. It is no different to deciding to order a newly released Iphone 7 from a company who is offering it at half price, located in Outer Mongolia. 

You want to use a regulated broker. For example, IG are FCA regulated and also one of the largest brokers in the world. These are the main reasons I have one of my accounts with them.

A couple of the things I hear all the time are:

-       Brokers take the other side of your trade so want you to lose
-       Brokers know where your stop is and take it out.

These are both fairly ridiculous when you actually think about it, but they are the most common and so I will address them both.

First of all, the regulation means that these companies abide by strict rules. Their books are open for inspection should it be deemed necessary. However I do understand that people can think the regulation is not enough of a reassurance.

Some brokers do act as market makers and do take the opposite side of your trade. They make money because a huge portion of retail traders lose money. And if you start becoming a consistently profitable trader? Does your broker suddenly go bust? No, they hedge their position and go right along as normal. They do not care if 5% of their client base is profitable. 

So let’s instead look at the very real world limitations of what is being said:

There are countless thousands/millions of people trading at any one time. These traders are across different timeframes, looking at different methods, and all of them using different entries, stops and targets.

How does a broker act biased against every single one of those people? It is impossible. Every trade is slightly different. Do you truly believe that the broker told the charting software to spike down to take out your stop so he can get your money but not the thousands of other traders going the opposite direction? 

Perhaps you do believe that. So let’s add to it: The charts you are looking at on your brokers screen are following official charts. I do not finish trading on the ftse 100, look at Yahoo Finance and find out the official figures showed a high of 6500 but my brokers high was 6700. If this were the case, the broker would be out of business within days.

So we have charts that are aligned with a market trading billions and billions of pounds in a day. Floor traders and banks dealing in positions worth millions of pounds each. The simple question is – how are these markets manipulated to work against you, a retail trader, with let’s say a £100,000 account, trading at £50 per point maximum? It just doesn’t happen.

Why do people then state so decisively that trading is a con?

Because they are bad traders.

Simple. Brutal. But very truthful.

People lose money in markets and look to blame everything and everyone except themselves.

If your stop is in a very obvious place, say just above key resistance, then guess what? You’re going to get stopped out a lot. This has nothing to do with your broker working against you. The market moves by taking peoples money. An easy way to do this is to go for where large groups of people are placing their stop. It’s not your broker working against you, it’s you working against yourself by executing a flawed trading plan.

Every time you enter the market it moves in the opposite direction? No, your broker is not doing that so it can take your position of 20 points at £2 per point and make a cool £40. You are simply entering the market at the incorrect time.

If you want to be a successful trader, it is possible. It is not easy, but you can do it with enough hard work and determination, just as you can do anything else you want to do in life. The problems arise when you expect things to come easy and when they don’t, you blame the world around you. Your broker is not stopping you from making money at trading. That is the unavoidable truth. Many people make a living at trading, myself included. You are losing out because you are not addressing your mistakes and working on improvement.

Hopefully this helps to dispel some of the worry that brokers work against you.

I’ve had a trading loss this morning – nothing to do with the broker. I move on from it now and onto the next trade, because I know what I do is profitable and the loss was nothing to do with the broker. 

I hope you’ve all had a great trading week!


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