Can any of you who are more experienced help an American newbie with suggestions on reputable brokers? I’ve been going through the School of Pipsology and also reading Anna Coulling’s book, Forex for Beginners, and am at the point where I would like to choose a broker and begin learning the ropes on a demo account. I started with a site Anna recommends: 100Forexbrokers.com, and quickly learned that most non-US brokers don’t take US clients, so that narrowed things down a bit. I also eliminated all Market Makers/Dealing Desk brokers, because I don’t like the idea of my broker taking the opposite side of a trade from me. I gather it is a debatable issue, but I would rather steer way clear of that potential conflict of interest. Beyond that, I don’t have a huge amount of capital, so I narrowed it down further to brokers that allow 1k lots, and new accounts in the several hundred dollar to few thousand dollar range. The one I liked best was MB Traders, but I then found that they have transferred their Forex business to a Dealing Desk broker called Trade King.
That left Forex.com, Oanda, Traders Choice, and FXCM–which is currently my favorite, one reason being I seem to be able to find a lot more videos on how to use their platform by random traders who say that FXCM’s platform is really the best you can get for a small trader. My concern is that when I do a search on scams, I get LOADS of hits on all these guys, and even a class action lawsuit some years ago against FXCM. From what I can gather, most of the people making scam accusations are newbies who went off half ****ed, lost money and figured they got swindled, when in fact, they just didn’t know what they were doing. Do I need to be wary of FXCM or any of these other brokers? Should I be looking at other folks?
You are right that most offshore brokers do not accept U.S. clients, thanks to the bully tactics of the U.S. regulator, the CFTC.
Also, thanks to the CFTC, most U.S. forex brokers have been driven out of business — and this is absolutely the intent of the CFTC, which wants to destroy off-exchange foreign currency trading in the U.S. (and worldwide).
All of this has resulted in the ironic situation that a retail forex trader in the U.S. now has more broker choices offshore, than here in our own country.
The little Nazis at the CFTC must be so proud of themselves!
There are now only 5 retail forex brokers in the U.S.:
FXCM, Gain (Forex.com), IBFX, Interactive Brokers, and Oanda.
Update: Soon there will be only 4 retail forex brokers in the U.S.
IBFX will be exiting the U.S. retail forex market, if buy-out plans currently underway pan out.
IBFX, which is the foreign exchange trading division of TradeStation (which is, in turn, owned by the Japanese firm Monex Group), will be sold to Oanda — potentially making Oanda the second-largest forex dealer (based on market share) in the U.S., after FXCM, and ahead of Gain.
Interactive Brokers requires a larger initial deposit than many beginners are willing or able to manage, so that broker may be off your list for now, despite their excellent reputation.
In our thread Going Offshore to Escape the CFTC, we have identified 15 offshore brokers who will deal with U.S. clients, and we have designated three of them as Trusted Brokers. You can read more about the vetting process which resulted in those designations HERE.
Regarding market-makers (dealing-desk brokers), see my comments below about FXCM and Oanda.
Oanda is a market-maker (by their own admission), but they claim NOT to be a dealing-desk broker. This requires some explanation, which you can read HERE.
FXCM is a dealing-desk broker for SOME of their clients, and an STP (non-dealing-desk broker) for others. The default account setting is NON-DEALING-DESK, unless the client specifically chooses the other option. Jason Rogers, the FXCM representative on the forum, explains the options HERE.
Trader’s Choice is an INTRODUCING BROKER (IB). If you sign up with them, your account will actually be with either Gain or FXCM.
You are right that most of the negative reviews you will read on forex brokers (or on any other subject on the internet) are posted by losers and malcontents. There are better sources for actionable information.
Yes, you need to be wary, in the same way that you would be wary in choosing a lawyer, or a financial planner, or a car dealer.
It’s called due diligence, and it’s your sole responsibility — nobody can do it for you.
My personal recommendations: As a brand-new newbie, start out with a U.S.-based, U.S.-regulated broker. You won’t go wrong with FXCM. Their headquarters (and servers) are in New York, not far from your location.
If, in the future, you decide to take your trading offshore, consider the recommendations in our Offshore Broker thread. That option will continue to be available to you — unless the CFTC succeeds totally in destroying the freedom of American citizens to trade wherever they choose. But, be aware that there are certain complexities involved in trading through an offshore broker, which you don’t have to contend with if you are trading with a U.S. broker — namely, extra IRS reporting requirements, and (in some cases) cumbersome money transfer procedures.
Good luck with your choice. It needs to be made carefully. There are risks involved in every option available to you. But, your choice is not irreversible — you can switch brokers as often as you like, and you can have accounts with more than one broker at a time.
Welcome to the forum, Michael! (I’ve been to Baltimore a couple of times and visited Camden Yards and the aquarium.)
Clint has already addressed many of your questions.
You can open a Standard FXCM account with as little as $2000 which would let you trade 1k micro lots on our No Dealing Desk (NDD) forex execution. On the NDD model, we offset each of your orders one-for-one with the best prices from competing liquidity providers. Therefore, we profit from your trading volume, not your losses.
I’m glad you’re finding our videos helpful. If you have additional questions about trading with FXCM, please feel free to ask me in the Broker Aid Station.
I won’t speak for other brokers, but the case you’re referring to was dismissed in November of 2011.
Clint, thank you for all that information!!!
Jason, thanks for reaching out!!
Haixia, great suggestion!
I feel like you guys have confirmed the direction I was starting to head in already, which is quite comforting. I am going with FXCM, but actually with NinjaTrader as the “introducing broker”. This affords me access to the NinjaTrader 8 platform, which looks pretty fantastic, and also, means I can open a standard account for just $1,000, which is about what I have put aside right now. I will try to update you here at some point on my progress. Thanks again for taking the time to respond and put all that info out there. It really helps with getting some perspective.
Don´t listen to comments, usually are losing traders blaming the broker. FXCM is a good broker, but unfortunately is not the best option right now. Is a big broker, but they were hit very hard financially on January 2015 on SNB day (losses over 200million USD). Also their stock that was trading at 169 that day, is now at 11.65, and it hasn´t recovered. I am not saying that is a bad broker, I am just saying that until they don´t recover, I wouldn´t put my money there.
Market makers are needed to provide liquidity. It has a bad name due to unreliable parties, but it has been part of exchanges since the beginning. Maybe they get an extra pip from you sometimes. If you are not scalping you would hardly notice it. Don’ t worry about that too much.
Scam sites are crap. Only people who are frustrated have the energy to post a review and often they are indeed based on lack of knowledge on their side (Oh no my broker is a scammer as the spread got wider during NFPR!). Retail traders like to have a front seat for free. 80% of the reviews I have seen are related to trading the news and the mistake of the trader. And if you look well enough you will see that, according to them, all brokers are scammers.
What coco is saying is actually proof that they are legit. 1. FXCM was able to find emergengy funds, 2. the losses were caused by their clients and not due to FXCM action. 3. They decided not to recover losses from their retailtraders. 4. Most likely you will get your funds returned in the case of a bankruptcy. I experienced that myself for one of my accounts at alpari.co.uk (who WENT bankrupt during the same event) and I got my balances paid out in full.
Probably not all brokers that were nearly bankrupt got meadia attention, can you tell me which those companies are?
Don’ t over-analyze your broker. I hope that you are so concerned about your trading strategy as well… FX is a high-risk world, so expect to take some risks. If you want to cover your potential losses, use two brokers. twice the risk of losing money, but it will be half your money.
Despite the events of 15 January 2015, FXCM’s capitalization remains at levels similar to before the SNB flash crash. Below are the latest financial data showing the capitalization of our US entity compared to other NFA-registered retail foreign exchange dealers:
The column that says “Total Amount of Retail Forex Obligation” shows the amount of money retail traders have on deposit with FXCM US which is over 30% greater than what is on deposit with the number 2 forex broker in the US.
The stock price is a reflection of shareholder value as a result of the loan FXCM received from Leucadia last year. While I’m not authorized to comment on that beyond citing info that’s already publicly available, below is an excerpt from a recent LeapRate article:
“most of the overall writeoff/loss is non cash and non operational, and has nothing to do with FXCMs operations and corporate health, but rather with accounting charges FXCM needs to take due to US GAAP accounting rules thanks to the future benefit that FXCM gave up to Leucadia.”
Most other forex brokers are privately-held companies, so it’s hard to know how much debt they have on their books or the state of their finances. Since we are a publicly-traded company (NYSE ticker: FXCM) the details of the Leucadia loan are well known.
In fact, in our most recent quarterly earnings presentation, we clearly outlined our plan is to repay the loan with proceeds from the sale of non-core assets:
We anticipate repaying the loan in full in the second quarter of this year. While the image above is a bit dated (we have already sold both FXCM Hong Kong and FXCM Securities), it shows the non-core assets we have sold or intend to sell.
Thanks you for your answer. I am sure there is an explanation for everything, and I am sure that Fxcm will pay his debts, and that is awesome, but buddy, If I have to contact the investor departmen to ask why the stock fell 80% I am not putting any money soon, at least not for the moment. You are missing the point here. FROM A POSSIBLE CLIENT POINT OF VIEW, today february 25 2016, If I have to choose between 2 big brokers right now, I would choose Oanda instead of FXCM.
Oanda is also a big broker, and despite having less deposits than FXCM the profitable traders exceed the profitable traders at FXCM, according to Q4 2015 profitability report:
I am just advicing the OP who asked about brokers. If people want to make a decision about opening an account, it is fair for them to know all the aspects of the broker, not only the good ones. FXCM may be not on bankrupcy, and all the aspects you comment are good, but lets face that FXCM is not on its best moment right now, and that is a fact, and people should know it. Rigth now Oanda is far a better option than FXCM. Nothing personal, just pure objective comment.
I fully agree with Clint’s obvious frustration around the CFTC. They know exactly what they are doing in trying to destroy the retail market. The stupid thing is, they’re going to end up making the market with only a few (well maybe even 1!) big players who won’t have to innovate and can charge clients whatever they want. US traders are being left behind and it’s not right.
As for what you can do now, I would recommend FXCM too. You really can’t go wrong with them, especially on your trading size. Their explanation in this thread to allegations of nearly going broke are top notch too by the way!
Although important to you you haven’t really explained why to prefer OANDA above FXCM to the OP? How does your argument relate to him considering mitigating measures such as regulator bail-out and funds in segregated accounts.
Perhaps it is better that you explain your point rather than just referring to articles, profitability reports and the share price. This is FX. Financial stability is important, but as you can see that can change in a day (referring to Jan 2015). Where would OANDA stand if they didn’t came up with their measure?
Does, in your point of view, one of the two brokers also have a prefference for you in terms of execution?
Sure no problem. Why do I prefer Oanda above of FXCM, besides the fact that they almost go broke last year and their share price fell 80%?:
Easy platform to use, and very good app for Mobile and Tablet devices. minilots you just can trade lot of 1000units, or even less.
They are american,and if you live in europe they also have premesis at UK
Also, what I like about Oanda is their java based platform. If you have a small account like I have then it is easy to adjust trade size so that you are not over leveraged.
They’re better than most brokers thanks to their unit sizing for positions which allows you to get the right position size no matter what your account size is, and their java platform is the smoothest execution platform I’ve come across, plus they also have MT4 and several third party vendors.
I actually use both FXCM and OANDA. But I am an MT4 trader, so I have not really an opinion about their native trading platforms. They both pretty much equal to me, although I notice a higher spread with OANDA, especially during the Asian session. But it don’t nick nack on a pip more or less, I just have to deal with that.
They both paid out my withdrawals and execution is okay for me.
I am not so much concerned about the CHF matter. Another broker I liked (Alpari.co.uk) went bankrupt during the CHF issue. It is part of trading that you are vulnerable to brokers going out of business. That is why diversification is a big part of my risk management. Multiple brokers and multiple strategies. That ensures that I will feel heartbroken when one broker doesn’t make it, but it is not the end of my life. Hence, I am not so much concerned about stock value.
As you article also mentioned the CHF matter had an effect on the whole industry. OANDA was lucky to have a clever lady/dude walking around that decided to make up fair quotes by averaging the quotes recived. I am not sure if they will be so lucky next time. The article mentioned that they didn’t receive quotes for 1,5 hours, that is significant but not necessarrily the fault of the broker.
The CHF matter just shows that the FX world is vulnerable to one-off events. Make that consideration part of your risk management and work with multiple brokers. For MT4 traders this is eassier as they can create a master/slave set-ups and trade multiple accounts at the same time. Using brokers own platforms makes this a bit more cumbersome as you have to place a trade multiple times, but it is worth it if you want to limit the effect when one broker (the one you are trading with) goes out-of-business.
The next crisis is coming! I am convinced of that, we just don’t know when and where.
Thanks for the additional information (and commentary!), everyone. I am only just beginning to get acquainted with market related news–an area that I think is going to take me quite a long time to develop in–and so I actually had to google SNB to even know what you were referring to. Now that I’ve done some reading, I can see that it was obviously, a huge event for the markets. But in any case, this helps me to be aware of the fact that the chance always exists that some unexpected market event or catastrophic event could have the potential to completely wipe out my account with a given broker. So while the advice to consider using more than one broker seems like a huge pain in the ass, I can see the reason for suggesting it. Pardon me for going Biblical for a second, but there is a related admonition in the book of Ecclesiastes, which says “Divide your portion to 7, or even to 8, for you do not know what misfortune may occur in the earth…”.
All that said, I’m obviously going to START with just one broker. It is already overwhelming enough learning the ropes of trading forex on ONE system with ONE broker. But something I will take great care with is not to leave any funds sitting with my broker beyond what I need to make trades at the lot sizes I want. That’s what bank accounts are for, right? And if I am successful, I may consider other brokerages. I also imagine, I will want to diversify at some point into the other markets–commodities, equities and bonds. That way, if forex is taken off the plate for Americans, I have other avenues already open to me. But for the moment, I’m sticking with learning forex.
A random thought I had while still trying to wake up this morning: what happens if someone sets off a nuke somewhere in the States, or anywhere else for that matter? Obviously, there are all the terrible things to consider that are more important than whether I am able to continue trading or not, but it is not too far fetched of a possibility to consider, is it? What sorts of measures does one take to properly “diversify” so that they are not completely bankrupt by such an event, even if they live no where near where the attack has happened?
Anyway, thanks again for these comments. For now, I am going to stick with FXCM, because, for one thing, I actually do want to scalp trade, and if that is something I particularly need to be concerned about with desk dealing brokers, then I am going to steer the hell clear of them.
I admire your enthusiasm for this [I]brave new world of trading[/I] that you are plunging into.
But, you are worrying about a lot of things that should not be factored into your choices and decisions at this stage of your newbie trading experience. Specifically, you are worrying about (1) splitting your funds among two or more forex brokers, (2) draining your forex account(s) of excess funds, to minimize loss in the event of broker insolvency, (3) diversifying into markets other than forex, and (4) planning in advance for economic armageddon.
All of that can wait for a year, or more. You have more than enough on your plate right now, just learning what the forex market is about, and proving to yourself that you can trade this market profitably and consistently, over the long term.
[I]If you like FXCM[/I] and feel comfortable with their size, strength and integrity; with their platform and spreads; and with the terms and conditions of the accounts they offer — [I]then, go with FXCM,[/I] forget about other brokers for now, and concentrate on mastering your chosen craft trading the smallest position-sizes possible.
Prove to yourself that you can be successful at this forex trading game, trading nickels and dimes. And then — and only then — ramp up your trading to more meaningful stakes.
As for all those things you are currently worrying (unnecessarily) about:
• If you were maintaining a minimum balance in your FXCM account, it would accomplish nothing to “diversify” into some other broker account, just in case something terrible happens to FXCM. Your minimum balance at FXCM would be at risk, either way. And having another forex account somewhere wouldn’t eliminate that risk.
Also (since you evidently are fond of “what if” scenarios), what if the (hypothetical) problem threatening to sink FXCM were a [I]systemic[/I] problem within the industry, or even within the entire economy? In that scenario, all of your forex accounts would be equally at risk.
• As for King Solomon’s advice, you probably already have your net worth spread over several of those 7 or 8 baskets that he recommended. Most likely, you have a good chunk of your net worth tied up in your home; and you probably have other portions in bank accounts, a retirement account, and possibly cash or valuables stored outside the banking system. One thing is for sure, you don’t need 7 or 8 brokerage accounts.
• Finally, the nuclear attack you were musing about: What you’re actually contemplating is an economic armageddon scenario — meaning something as bad (economically) as the Great Depression of 1929-1942, but striking much more suddenly. One scenario currently being bandied about involves an EMP attack on the U.S., which would wipe out the electrical power-grid of the entire country, creating an economic dead-zone for a generation, or more. Currently, one religious commentator is even preaching that this is prophesied to occur before 2017. You betcha.
A little thought should convince you that, in such an armageddon scenario, being diversified into multiple forex accounts, or into multiple financial markets, would be a useless precaution.
If scenarios like this keep you awake at night, consider diversifying into (1) cash and gold, stashed in a safe place outside the banking system, (2) emergency rations of food, water, medicine, etc. for your use, (3) emergency rations which you can use to barter in a collapsed economy, (4) guns and ammunition for your personal use, and (5) a stockpile of ammunition for barter purposes.
Many brand-new newbies feel drawn to scalping, because they see it as a way to take tiny little bites out of the market, over very short time periods, thus limiting risk to tiny little potential losses. And often, those brand-new newbies end up dying a “death by a thousand cuts” from all those tiny little bites.
Instead of scalping, consider starting out as a [I]day-trader. [/I] As a novice day-trader, you will learn much more about this market you want to participate in, than you could ever learn playing Forex Whac-A-Mole (which is what scalping is).
Good luck. Let us know what you’re up to, and how you’re doing.
That’s why it’s important to understand why FXCM and other STP brokers had much bigger exposure to the SNB flash crash last year than dealing desk brokers (AKA market makers) like the one with which you trade.
For all forex trades placed by our clients on standard FXCM accounts, we are a no dealing-desk broker and offset each trade one-for-one with our liquidity providers, and only make money on trades not customer losses. We published a study a few years ago called “traits of successful traders” that looked at FXCM traders over a long period of time and their general behavior to find what was destructive behavior to stay away from and what worked for clients.
The study focuses on what the majority of profitable traders did to increase their odds of success. What the study found was that traders who traded during quiet range-bound market hours like Asian hours OR that traded rang- bound low volatility currency pairs tended to be more profitable.
Obviously many of our competitors who are on the opposite side of their clients’ trades did not find the EUR/CHF trade to be helpful to their bottom line, as they lose money when traders profit. We saw many of the dealing desk firms begin to increase overnight rollover cost as well as raise margin requirements to get these trades off their system.
At the time of the SNB announcement over 3,000 FXCM clients held slightly over $1 billion in open positions on EUR/CHF. Those same clients held approximately $80 million of collateral in their accounts. As you know this was the largest move of a major currency since currencies started floating 1971.
The EUR/CHF move was 44 standard deviation moves, while most risk management systems only contemplate 3-6 standard deviations. The move wiped out those clients’ account equity as well as generated negative equity balances owed to FXCM of over $225 million. We believe that the FXCM system operated properly during this event.
The caveat of our no dealing-desk execution system is that traders are offset one for one with a liquidity provider. When a client entered a EUR/CHF trade with FXCM, FXCM Inc. had an identical trade with our liquidity providers. During the historic move, liquidity became extremely scarce and shallow, which affected execution prices. This liquidity issue resulted in some clients having a negative balance.
While clients could not cover their margin call with us we still had to cover the same margin call with our banks. When a client profits in the trade FXCM gives the profits to the customer, however, when the client is not profitable on that trade FXCM Inc. ends up having to pay the liquidity provider.
FXCM ended with a regulatory capital shortfall. Accordingly, FXCM needed to get a loan to cover this balance, which it did. For anyone that still thinks FXCM is running an FX dealing desk despite stating that we provide No Dealing Desk (NDD) forex execution to all our standard accounts, we have now demonstrated that such is not the case.
Incidentally, since you trade with a dealing desk broker, have you ever considered what would have happened to your account with them, if the market had moved 44 standard deviations in favor of your trade (and the trades of everyone else in the same position) and against your broker? Would they have had enough money to pay you and everyone else out on such a massive market move? Would they have wanted to even if they could?
On FXCM’s NDD model, we don’t trade against our clients, so we don’t profit from your losses or lose from your profits. Instead we profit from your trading volume. That means we want you to be profitable. Can your broker say the same?
[I]For some reason, many new traders do everything they can to avoid [long-term trading]. This is likely because new, uninformed traders think that a longer-term approach means it takes a lot longer to find profitability.
In most cases, this couldn’t be further from the truth.
By many accounts, trading with a shorter-term approach is quite a bit more difficult to do profitably, and it often takes traders considerably longer to develop their strategy to actually find profitability.
There are quite a few reasons for this, but the shorter the term, the less information that goes into each and every candlestick. Variability increases the shorter our outlooks get because we’re adding the limiting factor of time.
There aren’t many successful scalpers that don’t know what to do on the longer-term charts; and in many cases, day-traders are using the longer-term charts to plot their shorter-term strategies.
All new traders should begin with a long-term approach; only getting shorter-term as they see success with a longer-term strategy. This way, as the margin of error increases with shorter-term charts and more volatile information, the trader can dynamically make adjustments to risk and trade management.
Traders utilizing a longer-term approach can look to use the weekly chart to grade trends, and the daily chart to enter into positions. [/I]
Thank you for all the information, Clint and Jason.
Clint, I’m not sure why you ass-u-me to be such a worry wort, lying in bed at night unable to sleep. I like to ask a lot of questions and figure out what’s what. Also, I never said anything about dividing my money up between 8 brokers. I said I’d keep most of my money in the bank, and then sometime down the road if I wanted to trade in more things, I would consider adding another broker or switching brokers, etc. And I mentioned the nuclear scenario out of curiosity, not a panic attack. So don’t put all that anxiety on me.
Either way, I appreciate your advice and your perspective, and I wanted to ask a bit further about scalping vs. day trading and longer term trading. I may be using the wrong terms here, because I thought scalping and day trading were the same thing–namely closing out all your trades by the end of the day. Please set me straight.
Regarding longer term trading, wouldn’t that require a good bit more starting capital, because you would be dealing with much larger swings of the market and thus be required to risk a lot more money in order to have a proper stop loss in place?
Thanks so much everyone for taking the time to share your experience. I definitely want to just get consistent with forex trading, whatever time frame (and currency pairs) would be easiest for me to start out doing that in, because as I understand this whole thing, if I can consistently turn a profit with small amounts of money, it won’t really be any different to do so with larger amounts of money.
In the past, that might have been the case, but since 2012, FXCM has provided No Dealing Desk (NDD) forex execution on micro lot trades (we’ve offered NDD on larger trades since 2006). That means you can risk as little as 10 cents per pip.
You said you’re willing to risk up to $40 per trade. That equates to 400 pips on a micro lot which gives you plenty of options in regards to the time frames you can trade.