A very interesting read about Brokers and Forex Trading Part 1

Hello, I hope this is in the right thread. I have collected some information about forex markets from various locations and thing it is very useful information for sharing. I hope you agree it is worth reading and thinking about.

 

Posted in 2006.

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"I corresponded with Bill Willams in the summer 2006, at that time I have been crazy about Trading Chaos. And he constantly repeated, that he trades in futures and shares.

And I have always answered him, that I am involved with Forex.

 

And just now, probably, I understand, why did he dissuade me from Forex trading.

I think, that Bill Williams already knew about Forex controllability. I would like to share with you this information. It's quite interesting and instructive.

 

A material below he has sent me by the separate letter, and he has named it

" Reasons why I do not trade Forex ".

 

10.07.2006

....reasons why I do not trade Forex (bill wms)

 

WHEN TO NOT TRADE FOREX

Because so many people bombard us with requests about forex, we teach people how to trade it. Better to teach them the right way than to let them commit financial suicide. Nevertheless, we do not advocate forex trading unless you have a particular reason as to why you need to trade during the middle of the night, or you have a specific need to trade in currency pairs that do not involve the U.S. dollar. If the U.S.dollar is involved and you are able to trade during U.S. market hours (7:20am-2:00pm U.S.Central Time) you are much better off trading currencies in the Chicago currency futures markets. Here is the reason why:

 

* Brokers deceive you about there being no commissions. $30 minimum/round turn(called spread) is in reality a commission that eats up your capital at an astonishing rate. Even winning traders lose money and end up with negative results because of this outlandish overhead. Trading futures, you never have to pay a broker more than $10/round turn, and usually quite a bit less than that.

 

* Guaranteed fills. True but... The only way a broker can guarantee fills is for the broker to become the buyer or seller of last resort. That means the broker is running a bucket shop. All forex brokers are the buyer and seller of last resort.

 

* Brokers do not tell the truth about volume. They show the volume for all forex trading, which doesn't even come close to the volume they truly have at their own brokerage, which is where you are trading. Volume in currency futures is considerably higher than the volume traded at any single forex broker, often greater by a factor of ten.

 

* Leaning. Brokers say they are charging you a 3 pip spread to trade the popular currency pairs. But in reality a broker may be making as much or more than 10 pips on your trades. He does this by skewing prices. Since you are not trading at an exchange, the broker can feed you any price he wants to feed you. He can buy at the bank for perhaps 7 pips less than he sells to you. He then charges you 3 pips for the privilege of being ripped off for a total of 10 pips.

 

* Unregulated. Forex may sound like an exchange but it isn't. It exists entirely in cyberspace with every broker and every bank having different prices for any particular currency. There is no regulation,even for brokers who register with the CFTC and the NFA. Forex brokers do not have to mark to market each day as do futures brokers. If your forex broker files for bankruptcy or absconds with your money you have zero recourse.

 

* No guarantee. If a forex broker does go out of business, you could lose all your money. There are no guarantees and no one standing behind it. Futures brokers are required to mark to market every day. They have to put up cash to cover every open trade on their books. Future brokers have gone broke, but no future customer has ever lost one cent of the money in his trading account because of a failed broker. Nor have they had to wait for their money. It is immediately available.

 

* You can get exactly the same action in the euro fx futures as you get in the"Euro" forex. Commissions are as low as one tenth per round turn depending on volume, through a regulated broker, trading electronically at an exchange where you know the true price of the currency.

 

* What is the true price? A forex broker can only give you the price of a currency as quoted to him by the bank through which he trades. Banks have differing prices for a currency. You never know what the real price is because there is no central exchange through which all prices flow. Besides not knowing the true price from the bank, you can also be deceived by "leaning" or "skewing" of the real price at the bank. Forex brokers commonly lean the prices.

 

* Forex brokers are not truthful. They lure people in with hype and false advertising: "No commissions!" "Guaranteed fills." "24 hour trading:" Who in their right mind is going to trade in the middle of the night unless they have a special need. While it is true that total forex volume is greater than in the futures, futures volume at the exchange is greater than the volume at your broker for the most popularly traded currencies. The only place where the liquidity differential matters is in currencies like the Mexican peso, the Brazilian real, and somebody's drachma.

 

Those thinly traded currencies may be more liquid in forex. But if you trade anything but the few most liquid and popular currencies, you are going to be paying at least 5 pips, and often more. Unless you have a particular commercial need to deal in Polish ziotys, Indian rupees, or some other thinly traded currency, you don't need forex.

 

* You are told by forex brokers that there is little or no stop running. This is one of their biggest and boldest fabrications. The truth is there is far more stop running in forex than in futures, and possibly as much stop running as in the stock market. I have friends who work in forex as well as many traders who of necessity have to trade forex. One of my students is a market maker in forex. These are people who should know, but in case you don't want to believe me or them, simple observation of forex trading will reveal the vast amount of stop running that takes place there. Who is it that runs the stop? It's your friendly forex broker, that's who. The broker has a vested interest in seeing to it that your orders are filled. Stop running is nothing more than order filling. The broker sees to it that everybody's orders get filled.

 

* Probably you have heard that if your are winning regularly in forex, you may be barred from trading. Is this true? Yes it is. The fact that is true is just another proof that when you trade forex you are trading at a bucket shop.

In the book, "Reminiscences of a Stock Operator, " we are told that Jesse Livermore was banned from trading a certain stock brokers because they couldn't stand him beating the housel. The same thing is true with many forex brokers.

Since they are the ones guaranteeing you a fill they in effect the buyer and seller of last re-sort. The truth is that most forex brokers have precious little liquidity at their firms. In order to give you the impression that there is liquidity, it is the broker who gives you your fill. It is the broker who does the stop running that supposedly doesn't exist in forex. But if you are regularly beating the socks off the broker, he will ban you from trading at his firm.

 

Now you know the truth about forex. I challenge any and all forex brokers to prove that I am wrong.

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I have received numerous requests for readers to share this information on other forums. I have no problem with anyone doing so provided they include the following statement, and a link to this page, prior to posting the content:

 

“Originally posted by Darkstar at FF.”

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"Futures brokers are required to mark to market every day. They have to put up cash to cover every open trade on their books. Future brokers have gone broke, but no future customer has ever lost one cent of the money in his trading account because of a failed broker. Nor have they had to wait for their money. It is immediately available."

 

MF Global proved that this statement is false.

More i deal witch forex more i'm interested in trading futures. Thank You for a great read :)

The last time I traded futures, my broker screwed me over worse than I have ever been screwed over in forex. Just sayin....

i think the above was said by Joe Ross also as fore93 pointed out after the mf global bankruptcy it doesn't matter anymore who guarantees the money whether the clearing house or the exchange or SEC ...... there's a real chance you could still lose it ..... more so in 2012 when things seem to be getting worse with each passing month

ok, the solution?

true ecn/stp, dma/stp, no dealing desk, separated account...