Online Forex Trading
Paul Belogour, managing director of Commercial Bank Foreign Exchange (CBFX), speaks to Rafik Patel about the growth of online Forex trading.
Q1: When you consider that the foreign exchange market has become the world’s largest financial market, with more than US $1.5 trillion traded daily, where does it go from here?
It will only get bigger. As more and more retail customers enter this market in search of volatility and quick profits, the volume will continue to grow. In addition as accessibility to the internet will continue to rise, especially in Asia, this will add more retail customers trying their luck in trading foreign exchange (Forex).
Q2: Other than great liquidity, what are the principal benefits attached to the Forex market?
Simplicity. In contrast to the Equity or Futures and Options products, Forex is probably the simplest financial product. For many people it is a chart and either a television or a newspaper that help them to make a decision to buy or sell. This is especially true in developing countries that are just now learning to use the internet to trade Forex.
Q3: Limited market access, liquidity issues, after market hours, commission fees, capital requirements and short selling/stop restrictions are just some of the issues investors face when considering other markets. Given that the Forex market removes many of these traditional barriers and therefore does not restrict the Forex traders’ ability to make a trade at the right time, are we likely to see an increase in trading volumes this year?
That is correct. Enabling a retail customer to trade Forex online 24/6 is a big difference that separates Forex from other products.
Q4: There is stiff competition among online Forex service providers for retail Forex traders, with some claiming to offer the same degree of technical analysis enjoyed by the world’s largest banks and institutional traders. Is this possible?
I am not sure that this is true. A large bank with a big order to buy, say, US$1,000 million or Japanese yen can move the market in any way they want, by selling ahead then buying – and doing that all day. Technical analysis cannot predict this market behaviour once a single bank is filling an order and clears all of the stops on the down or upside. Although many technicians claim that they can predict markets based on technical analysis, we find that their prediction is 50:50. The general market predictions that take into consideration GDP, interest rate rise and unemployment, for example, have always been available to the general public and are usually made available by larger banks.
Because these analyses consider such broader economic indicators, they tend to be more precise.
Q5: Many Forex firms promote the same features and quite often the same cookie-cutter trading platform. What distinguishes CBFX from the competition?
You are right for the most part. Our platform is similar to other competitors in many ways. We separate ourselves from others by promoting reliability and simplicity. Our platform works during major economic announcements and on every continent, even those with poor internet connections. While many of our competitors try to pack their platforms with too many advanced features, we focus on making our platform simple and user friendly, with a logical, common-sense approach. Many newcomers to the Forex market are first-time users or inexperienced traders. We continuously strive to understand our customers and to build our platform around their experiences when dealing with the financial instruments.
Q6: Investors are often concerned with slippage – and rightly so. It is not unheard of for some companies in the retail and institutional sector to specialise in precise slippage on stop orders, in order to expand their revenues from clients. What is CBFX’s position on slippage?
Since day one of our operation we have never guaranteed to execute Stops or Limits for our customers, especially during major economic announcements. We treat our clients in the same way as we are treated by our counterparties. If there is a big figure gap our first available price with our counterparties is the same price for our customers. We truly reflect the market conditions of the imperfect Forex market where the liquidity is always present, but the market can have gaps of one or two big figures. Since we always reflect the true market conditions to our customers we always fill Stops and Limits if the price is available on the market at that given time. Unlike our competitors, we do not sell a service that does not exist in this market and that can potentially place our business at risk. Instead, we offer our customers what we can get for the bank on the inter-bank market. Many customers who were promised 100 per cent execution on Stops or Limits by other brokerage firms and did not receive it come to us and respect us for our honest and open corporate philosophy. We build our business by telling the truth.
Q7: Do you subscribe to the theory that Forex is less volatile than stocks because the market is much deeper?
No, I would say that Forex is a volatile market. Also, given that most of the customers trade on margins that go as far as 1:400 in some places, the volatility in relation to the equity put down make this market dangerous for many inexperienced traders.
Q8: US interest rates, decade lows, global trade wars and terrorism fears have dominated the headlines recently. What impact has this had on retail volumes?
The retail customers love it. They use Forex predominately for speculative reasons and bet that any new major news announcement would move the market in the direction of their trade. As I mentioned before, most of the customers trade on the basis of news that has come from CNBC, the internet or that they have read in the newspapers. The more uncertainties there are, the greater volatility of the markets and the more investors want to guess right that, given a particular piece of news, they can strike lucky.
Q9: In the United States, the Commodity Futures Trading Commission (CFTC) has brought 58 actions against firms, since its new powers were awarded in 2000. What can investors do to protect themselves, given that certain brokers continue to abuse the system, with investor money sometimes not being traded in the markets promised?
Avoid dealing with the bogus money managers that promise high returns and charge high commissions.
Investors should be very careful with the entity that they are about to deal with. They should avoid overleveraging their available equity and avoid offers from the FCM that offer 400:1 leverages. Investors should avoid newly established, undercapitalised FCMs and any money managers without credentials. They should never give money to the unregistered Hedge Funds that pull money specifically for Forex trading. Investors should never deposit money with a checking account of an entity that is not regulated or not authorised to accept customers’ deposits. If investors don’t want to trade on their own and still want to go through a money manager, they should open accounts and deposit directly with the Clearing FCM firms, and never with the introducing brokers, money managers or financial advisors.
Q10: What is this best way for “currency rookies” to get involved in the market?
Try with $1,000 and learn the trading platform and movements or behaviour of different currency pairs during different times of the day.
Entry Filed under: E-finance, Financial Technology, Online Trading