Author Topic: The state of fx retail trading  (Read 265 times)

Excalibur

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The state of fx retail trading
« on: September 17, 2019, 06:51:25 AM »
Hello everyone,

I am brand new here and will kick-start this topic.

Through the years we have seen a steep rise in retail fx accounts and a saturation of the brokers' market: this phenomenon brought out its share of bucket-shop dealers and this did not go unnoticed, so much so that in the UK the FCA stepped in with measures such as enforcing a cap on leverage offered by brokers to new clients.

With the fx brokers' boom at maturity, what will happen to fx retail trading? Will it move gradually back into futures, or high-net-worth clients' hands, for example? Would further restrictions imposed by regulatory bodies like the FCA- e.g. on starting capital requirements - make this a less attractive market for people who aspire to trade their way into profits with their own money?

Markaria

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Re: The state of fx retail trading
« Reply #1 on: September 17, 2019, 06:27:54 PM »
Hello Excalibur-cool name btw
Some interesting comments in your post. I have been wondering if after Brexit the UK might relax some of the EU trading rules to try and encourage traders to use uk companies.  Have you any thoughts?

Kaitsu

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Re: The state of fx retail trading
« Reply #2 on: September 20, 2019, 03:23:45 PM »
In the past there have been too many brokers that earn their money mainly and deliberately from being on the other side of clients' losses. New traders without much education or experience tend to lose their deposits very quickly from wrong trades and over-exposure. Especially since their equity tends to be minimal and in a range of USD100-1000.

But this approach requires a constant flow of new traders and that is going to become tougher to achieve when brokers have to display their overall client success rate on their webpage (at least with ESMA).

Hopefully, the tighter regulation from ESMA and FCA etc will change this so that brokers will prefer to encourage and develop long term relationships with their successful clients and provide better services and educational facilities.

We may see regular merges amongst brokers into bigger units to save costs and to cover wider range of countries.

But I think forex interest may gradually dwindle and  be replaced with cryptos. Especially once some central banks, institutions and commercials start taking greater interest in them.

Excalibur

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Re: The state of fx retail trading
« Reply #3 on: September 21, 2019, 08:06:57 AM »
Hello everyone.

I agree with Emerson 100%.

It would be interesting to see if/ how the decentralised nature of spot FX trading will transfer over to the cryptocurrency market, and if there would be another Klondike-style gold rush from all brokers left alive from the previous (fx-based) gold rush.


Excalibur

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Caesar

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Re: The state of fx retail trading
« Reply #5 on: September 21, 2019, 08:17:50 AM »
Excalibur,  you're link makes for an interesting read.
Would you mind putting a copy of it on our Crypto's section, it might make an interesting starting point for conversation over there as well.
Thanks

Markaria

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Re: The state of fx retail trading
« Reply #6 on: September 21, 2019, 08:42:23 AM »
In the past there have been too many brokers that earn their money mainly and deliberately from being on the other side of clients' losses. New traders without much education or experience tend to lose their deposits very quickly from wrong trades and over-exposure. Especially since their equity tends to be minimal and in a range of USD100-1000.

But this approach requires a constant flow of new traders and that is going to become tougher to achieve when brokers have to display their overall client success rate on their webpage (at least with ESMA).

A lot of new traders donít realise that in many cases their brokers donít even place their orders on the market. They happily sit back and let the newbies think they are making profit. If they try to withdraw they suddenly find their broker unavailable, but in most cases their profits eventually turn to losses and they are never aware that they could never win in the long run anyway

Kaitsu

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Re: The state of fx retail trading
« Reply #7 on: September 21, 2019, 09:14:29 AM »
A lot of new traders donít realise that in many cases their brokers donít even place their orders on the market. They happily sit back and let the newbies think they are making profit. If they try to withdraw they suddenly find their broker unavailable, but in most cases their profits eventually turn to losses and they are never aware that they could never win in the long run anyway
This is, unfortunately, true. I don't know how or why newcomers end up with some of these small, unheard of, unregulated brokers. Why not always deal with a properly regulated, big broker.

Naturally, it would be unrealistic for any broker to match and monitor each and every trade place by its (smaller) retail clients. They are only concerned with their own overall exposure and the more substantial trades that some clients would place.

It is clear from statistics that at least 75-80% of their clients will lose their capital anyway and that the minimal size of their capital combined with current low leverage levels assures that no individual could ever present a financial threat, and therefore requires no individual monitoring or hedging actions. Easy earnings for the broker.

Caesar

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Re: The state of fx retail trading
« Reply #8 on: September 21, 2019, 10:40:51 AM »
ďI don't know how or why newcomers end up with some of these small, unheard of, unregulated brokersď

Because they offer huge leverage, low deposits, competitions, and bonus deposits.
Target peopleís greed and youíll win every time

Kaitsu

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Re: The state of fx retail trading
« Reply #9 on: September 21, 2019, 11:10:18 AM »
Because they offer huge leverage, low deposits, competitions, and bonus deposits.
Target peopleís greed and youíll win every time

Regrettably, this is so.  And incredible that people do not see this.

It is a real pity because extensive losses create the illusion that FX trading is inherently difficult if not impossible (that is not to say that it is easy). Whereas the real reason why there is such a high percentage of losers is the non-existent entry criteria concerning training, understanding, capability and intelligence.

The problem is that such a high failure rate and the causes of it create greater restrictions from regulators for those that take their trading seriously and professionally. But I don't think that is actually such a big problem yet.