Let’s talk conspiracy theories. Many new traders get caught up in the idea that they cannot make any money because the spot forex market is manipulated. The dealer, (aka your broker) knows where your stops are and purposely runs them in order to generate losses for you and wins for him. They don’t let you out of your winner at your price even though the price was touched, and eventually the trade stopped out. How could the NFA let this happen you ask!?
The retail forex business has not had a stellar reputation thanks to some less reputable brokers who were able to get away running stops etc. What you need to realize is all this happened years ago. With the evolution of technology and the strict oversight of the NFA, the business has been cleaned up at least in the United States. Just go to the NFA website and look up your broker on the BASIC search, and you can read any regulatory actions taken against them.
I am not one to defend forex brokers since they are not on my side either, but I do know one thing. Most of the time, the losses that we generate are our own fault. It is very easy to find someone to blame for our lack of success and the dealer is an easy target.
New traders are especially prone to the conspiracy theory tangent. Think about this: you are a new forex trader, you are isolated and the only information you have is what you read on twitter, blogs and forums that are full of market noise. You are frustrated because you can’t figure out how to make money and then you come across a thread or tweet that suggests the dealers are out to get you. Now combine that with the random nature of the market and an ego that cannot handle being wrong, and you have an unhappy trader who bad mouths their broker and gets consumed with this idea that the problem is not them, it’s the broker.
If you are in this situation, this is what you need to realize: Forex dealers provide liquidity. They are a buyer when you need to sell and vice versa. Yes, they are also the counter party and win when you lose, and yes there is a conflict of interest, but they are not actively out to get you anymore. The big name brokers who have a lot to lose and can no longer afford the fines or bad reputation. Most of the time they are balancing their exposure and making sure they don’t get too one sided in the market. (If all of their clients go long, that means they are really short, and sometimes the clients are right).
When you lose, most of the time, it is your fault. If the forex dealer was the problem, then you should be able to trade another instrument if you are so good and win. This is an issue of letting go of the ego and taking responsibility for lack of knowledge and experience. In my opinion that is a very important step to becoming a professional trader.
The real reasons why people lose is because of flawed strategies, no structure, no discipline and a general lack of knowledge. If you find yourself blaming your broker, consider spending some time educating yourself further and you will be in a much better position to judge the quality of your broker.
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Marc Principato, CMT
*No Relevant Positions
