How to avoid getting screwed by your CFD / Forex trading broker
If you read trading forums such as trade2win and babybips then every so often you’ll come across someone who is asking for advice as it appears that they have been well and truly ripped off by their broker. I’m sure most brokers are honest but here are a few things you can to avoid the risk of bad things happening to you.
When you start generating a profit make sure they’ll let you withdraw the money
There are stories of people who have spent a lot of time building up their trading account, only to find that they have a lot of trouble getting the money back out. In the worst cases there are reports of people who can’t get their broker to give them any of their own money.
You could get into problems if:
- You have closed the bank account which was originally registered with them. For fraud prevention purposes they may make you jump through hoops to get a new account registered. Of course you’ll never have any problems paying money to your broker from whatever means you want. Similarly you could run into problems if they pay the money to your credit / debit card and it has expired.
- They tell you they have problems verifying your identity and require more details. This could severely delay your cash withdrawal as you’ll have to post/fax off whatever documents they request.
- They simply ignore your request. Sometimes it seems that requests to withdrawer your own money isn’t a very high priority for them.
- Your broker tells you that you have broken a rule in their terms and conditions. Have you read yours? They could easily say that because you haven’t obeyed whatever obscure rule they are suspending / terminating your account and won’t give you any of your money back.
The lesson to learn here is that as soon as you have made some money test their account withdrawal procedure. Take some of the money out and have it paid back to you. And then regularly transfer money out – if you are good at trading you should in effect be ‘paying yourself a salary from your trading account’.
Not only does making regular money withdrawals prevent you from running into this particular problem it also prevents you from accidentally losing your account with a highly risky trade gone bad or from some other trading mistake.
Don’t let your account get too big
This is related to the above advice. If your account gets too big then you will start getting noticed by your broker. This can cause all kinds of problems for you as they may start referring your trades to the dealer or be less willing to pay your money back to you. Best to stay ‘under the radar’ and withdraw money regularly. Of course this is only a problem with you are able to win regularly enough to get a big account balance.
Keeping your account small also has a few more advantages:
- If a trade goes badly wrong (e.g. you bet the wrong way, the price massively moved and you didn’t have a stop!) your broker is likely to automatically close the trade for you when the balance gets within their minimum liquidity limit. If you had a huge pile of cash in there then your cash would just get eaten up until it is all gone.
- Keeping a small account means you are less likely to be tempted to get into overly risky trades.
Don’t build up huge positions
If you keep on putting more and more money into a winning position then you may run into problems when you try to close it. I’ve heard of people being ‘referred to dealer’ at the critical moment, which of course could lose them a whole load of profit as you either have to wait for the dealer to accept the trade or call them up. In the wrong conditions this could even turn a winning trade into a losing one.
In one horror story that I read the guy claimed to have built up a position of £1000 per point! That’s an insane thing to do with a retail broker and is bound to get you noticed when most other people are betting in the single or double digit range per point. If you are able to play around with that kind of money then you should probably be getting a professional trading account.
As with the previous tip you are best off staying away from their watch lists by keeping your positions small.
Regularly take profits out of your account. It is much safer in your personal bank account than in your trading broker’s account. It is much harder for your high street bank to refuse to give you back your own money than it is for a broker. You certainly don’t want to be with any broker who makes a fuss / takes too long / or just generally makes it difficult for you to withdraw your trading profits.
Don’t make yourself stand out from the crowd! It is best to be one of the masses rather than getting ‘special attention’ from your broker. Withdraw your money regularly to keep your account at a reasonable level and keep the size of your trades within the standard range that the broker would expect.