In an enormous market like the Forex market, competition is extremely tight. Brokers have to go out of their way to find the best rates for you.
However, there are some charlatans that know exactly how to lure you in.
This applies to traders who don’t wish to trade their own account. They want to hand over their hand to a broker to make their bucks for them.
And so, they’ll offer you the cheapest rates.
They’ll say, when you buy the EUR/USD you’ll only pay 2 pips…
And if you buy say 5 micro contracts, you’ll look to risk around R10 risk per pip.
Here’s an example on how it works. Say your broker buys (go long) one micro contract for your portfolio. The spot market is trading at $1.5900.
So when you buy the contract, you’ll buy it at $1.5902, two pips above the spot market. Without blinking an eye your broker makes R20 rand just for getting into a Forex trade.
And so, the spread (between the bid and offer), is where the broker makes his money – (R20 to be exact).
What if your broker in just one day takes on 20 trades, with his discretion, on your portfolio.
This means, your broker would’ve banked R400, for just taking Forex trades, whether they’re winners or losers.
Your broker has just exercised a sneaky trick.
Churning is where the broker will try to buy and sell positions with only one incentive – to make him profit.
He doesn’t care if you make profits or not, as long as he banks his R400 for the day.
There are many swindles where traders invest their money with this charlatan brokers, and later they find their portfolio has been wiped out.
And then a trader asked what happened, the broker throws in that sneaky card. "Past performance does not guarantee future results and you shouldn’t risk money you can’t afford to lose."
So, how do you avoid these serpent brokers?
The trick is to find professional and world renowned brokers such as SA Stock Brokers, GT247.com or even IG Markets.
These are leading brokers who certainly can’t damage their reputation by churning your portfolio.
Instruct these brokers to send you a SMS or email EVERYTIME they take a trade on your portfolio, with the reasoning behind each trade
Tell them how much you’re willing to risk per trade and how many trades max you’d like the broker to make.
Once you monitor their results and see if they mean well, then change your trading specifications accordingly.
But until then, don’t just trust any broker because of hat you hear or read.
"Wisdom yields Wealth"
Senior Editor: Trading Tips
Head Analyst: Red Hot Storm Trader