Need help from my Veteran Traders on the first Broker I’m considering, I’m grateful for any answers I’m given.
The FX broker I’m considering is FxPro. I’ve done as much research on it as I can, but I’m still left with a few questions unanswered.
Is FxPro a good choice for a broker?
I’m from the US and FxPro is an offshore broker in the UK, will they take me in as a client if I’m from the US?
Will FxPro allow me to wire funds into my account from my bank in the US?
Is FxPro’s withdrawal process hassle free? I mean is it quick and can it be done at the click of a few buttons, no waiting time as well as no limits to how much I’m able to withdraw?
Is there anybody reading this that happens to be with FxPro and is a US client who can tell me anything else or give me insights on them? Are you happy with their service?
*Note: Would prefer if the answers weren’t vague, I don’t mind reading detailed paragraphs. It helps me understand the answers to my questions. Thank you
US law requires a broker to be regulated by the CFTC and NFA in order to offer forex trading services to US clients. That’s probably why no US trader was able to answer questions about that non-US broker. Any broker that offered forex trading services to US clients without a license would be breaking US law.
As of the latest data from the CFTC, FOREX.com is the largest US retail forex broker by client assets. Should you have questions about our services, please feel free to post them in our discussion thread.
When it comes to choosing a forex broker, the most important factor is strong regulation. Recently, there have been several discussions on this forum highlighting the dangers of trading with unregulated brokers:
Forex is regulated by government bodies in major financial centers around the world. For traders who live in those major trading centers, it makes sense to focus on brokers regulated in their home country.
Even traders who don’t live in one of those countries should consider brokers regulated in a major financial center appropriate for their region. For example:
In the US, forex is regulated by the CFTC and NFA, and brokers are required to maintain net capital of $20 million.
In the UK, forex trading is regulated by the FCA and funds are protected for up to £50,000 per client by the FSCS.
In Canada, forex trading is regulated by IIROC and funds are protected for up to $1 million per client by the CIPF.
Once traders focus their search on well-regulated brokers appropriate for their region, they can choose from among those regulated brokers by considering on other important factors such as customer service, trading platforms, charting options, educational resources, research and spreads.
Thank you for telling me about the forex broker, but I’m not looking for US based brokers because the US only allows its brokers to provide 50:1 leverage. I prefer to trade 200:1, which is why I’m considering offshore brokers. It’s a shame FxPro isn’t taking US clientele. I’m now considering Tradersway, I know that they’re not regulated but a few people that have recommended them to me say they’re still a good choice. What is your opinion on Tradersway?
Our opinion has always been that it is better to choose a well-regulated broker for all the reasons we stated previously. Other advantages of trading with a well-regulated broker are:
minimum financial and trading standards they must meet,
ongoing monitoring by the regulators to ensure compliance,
a framework for handling complaints from customers, and the
power to enforce actions against regulated brokers for violations.
Is it possible you’re not actually using as much leverage as you think?
If you use the full 200:1 leverage offered by the unregulated broker you considered, then you would be trading one standard lot (100,000 units of base currency risking about $10 per pip) for every $500 in your account. That means a 50 pip move against you would completely wipe out your account, and a market gap greater than 50 pips would lead to a negative balance in your account.
What is the actual ratio between the notional value of your open trades and your trading account balance? That would determine your effective leverage which might be closer to the 50:1 leverage allowed by US regulations than you realize.
Who said anything about me starting off with trading standard lots if I do 200:1 leverage. I understand what you’re saying, if I open a standard lot with my chosen leverage and have the trade go against me by 50 pips I’m a goner, but you say it so surely. As though I’m going to start off trading standard lots, that’s not likely. I’m still learning and will demo trade a lot before I get into a live account and even when I do open a live account I’m going to be trading micro and mini lots to get the hang of trading real money. You also say that I’d blow my account if a trade goes against me by 50 like I don’t know anything about risk management and will go in casually
We used a standard lot in our example, because, as the name implies, it is a common trade size.
We did not make assumptions about your trade size, but since you intend to start trading micro and mini lots, it’s important to understand the risk is the same in percentage terms if not in dollar terms.
If you use the full 200:1 leverage offered by the unregulated broker you considered, then you would be trading one mini lot (10,000 units of base currency risking about $1 per pip) for every $50 in your account. That means a 50 pip move against you would completely wipe out your account, and a market gap greater than 50 pips would lead to a negative balance in your account.
If you use the full 200:1 leverage offered by the unregulated broker you considered, then you would be trading one micro lot (1,000 units of base currency risking about 10 cents per pip) for every $5 in your account. That means a 50 pip move against you would completely wipe out your account, and a market gap greater than 50 pips would lead to a negative balance in your account.
You can be sure as well, once you understand the math behind the use of leverage.
If you place a trade without leverage (in other words, the money in your trading account is enough to cover the full face value of the market position you open, which is the same as 1 to 1 leverage) then it would take a 100% drop in the value of the currency pair you buy for your account to be wiped out.
If you place a trade with 2 to 1 leverage (in other words, the face value of the market position you open is twice the value of the money in your account) then it would take a 50% drop in the value of the currency pair you buy for your account to be wiped out.
If you place a trade with 10 to 1 leverage (in other words, the face value of the market position you open is 10 times the value of the money in your account) then it would take a 10% drop in the value of the currency pair you buy for your account to be wiped out.
If you place a trade with 50 to 1 leverage (in other words, the face value of the market position you open is 50 times the value of the money in your account) then it would take a 2% drop in the value of the currency pair you buy for your account to be wiped out.
If you place a trade with 200 to 1 leverage (in other words, the face value of the market position you open is 200 times the value of the money in your account) then it would take a 0.5% drop in the value of the currency pair you buy for your account to be wiped out, or about 50 pips depending on the exact currency pair in question.
The key point here is that increasing leverage increases risk.
The good news is you don’t have to use all the leverage that’s available to you. It’s important to understand the difference between the maximum leverage available to you, and the actual amount of leverage you are using. Maximum leverage is like the top speed your car can reach, while your effective leverage is like the speed you actually drive your car.
And just as you would never drive your car at its top speed, you should never look to open trading positions so large that your effective leverage reaches the maximum leverage available to you. That’s because leverage magnifies both your gains and your losses.
(To continue the car analogy, an unregulated broker that tries to entice you with more leverage than is allowed by law where you live is like speeding in a car that does not pass inspection and is not street legal. Is this the best option for a brand new driver?)
Beginner traders tend to think only about how much money they can make and don’t pay enough attention to how much they could lose. You may find this article helpful in understanding the rationale behind risking only 1% of your account balance per trade: The Most Important Math in Trading | New Trader U | Page 4
It would be very hard to limit your risk to only 1% of your account balance if you are using more than 10:1 effective leverage. That’s why studies have shown that traders who use 10:1 leverage or less tend to perform better than traders who use more than 10:1 leverage.
Regardless of the maximum leverage available to you through your broker (30:1, 50:1, 200:1 or 400:1, and you should be concerned about the risk management of brokers offering extremely high leverage to clients), you can choose to use 10:1 effective leverage (just as you can choose to drive 45 mph, whether your car has a top speed of 155 mph or 255 mph) which would equate to one micro lot (or 1000 currency units risking 10 cents per pip) for every $100 in your account balance.
I understand most of what you’re saying, I thank you for explaining it in detail. I’m considering what you said about leverage at the moment, but then it poses another question in my mind. If I do happen to follow your advice about lower leverage (50:1), wouldn’t it mean I’d have to pay more in initial margin to open trades or even have more money in my account to start off trading in general. If you need me to elaborate more, feel free to ask.
Hey @C48R3RA, Margin Calc… It will allow you to work out the leverage / margin ratio on micro lots…
The Broker’s love the lower leverage (50:1)… it means you have to deposit a vastly greater amount of money with them to avoid margin calls and trade the micro lots… the calculator will show you this…
Higher leverage does not affect your Stop Loss or Take Profits at all… It just limits the amount of positions / Lot sizes you have access to (Margin) at any given time…
0.01 lots -5 pips @50:1 is the same loss value as 0.01 lots -5 pips @400:1…
Research thoroughly… Money and Risk Management strategies are not all based on the leverage…
