How FX traders are reclaiming power from their platform providers

The number of companies competing as platform providers for FX traders are many, and they’re not always structured in a way that will see their goals aligned with those of its clients. This creates an environment where – in some cases – FX business plans can be predicated on the likelihood that its clients, on average, will lose money.

Like any sector of the financial services industry, from financial planning to funds management, there are good examples of FX trading destinations and bad ones.

With higher profit margins among those who tend to take on more client risk and effectively bet against their community of traders, those at the riskier end tend to spend more money on advertising and will dominate the statistics pertaining to overall client profitability. Some of the biggest, publicly-listed retail trading platforms in the world will occasionally be so confident in their clients getting things wrong that they will offer them the opportunity to trade markets where they couldn’t properly hedge even if they wanted to, such as virtual currencies or pre-IPO CFDs.

New to foreign exchange trading? Find out how it works here.

With all of that in mind, it is easy to imagine why the ‘average’ FX trading experience might be a negative one. However, the good news is that with the right education and guidance, the power to control the trading experience and profit-to-loss ratio can sit with the client and not the FX platform provider. But one has to be willing to learn and willing to treat trading like a business.

Here are some ways an FX trader can utilise this business analogy to their benefit and reclaim the power in the FX trading relationship:

  • Write a trading plan, just as you would a business plan: Rivkin’s fulltime technical analysts have comprehensive trading plans that encompass everything from their personal morning routine to practise trades training and detailed trade management. They know what their expected trading outcomes are by which to gauge their success or failure. 
  • If you were starting a small business, you wouldn’t start it with $200: Plenty of FX brokers will encourage you to start with a small deposit. A small deposit means that you’re more likely to use a lot of leverage and experience higher volatility in your trading. This makes your job as a trader harder, as the size of the single trades placed will mean that the risk relative to your account balance is disproportionately large. If you can average 15% or more per annum, you’re beating the long-term average performance of stock markets and doing well. So ask yourself: how much capital do you require in order to make a 15% return per annum appealing?
  • You certainly wouldn’t intentionally take risks that could send you broke in year one – preserve your capital: Our technical traders risk no more than 2% of their capital per trade, and they NEVER second guess that aspect of their trade process. We don’t recommend that any trader seeking short-term FX profits risk more than 2%, and this can be done by using stop losses both at the time you implement your trade and throughout the trade management process, allowing you to cut your losses short and let your profits run. We wrote a short post here on another tool  – the risk/reward ratio  – that you can use to help ensure your trading is profitable over the long-term.

Just like in business, traders should be thinking in three phases:

  1. Start-up mode: While learning to trade successfully, your income from trading may not cover your losses. While this is happening, you should be limiting your risk to a small amount of money per trade and focusing on the process you use to trade, ensuring that you are learning from all of your mistakes and continually improving.
  2. Breakeven: Markets will always be more and less kind at various times, even to the most experienced traders, but on average you should be aiming to at least break even on any given year as an absolute base-case scenario.
  3. Profitable: A mark of success will be when, on an average year, you make a profit from your trading and you are content with your trading process.

Don’t isolate yourself, find an expert and/or a community of experienced traders to keep you sharp: It’s no coincidence that great business people quote their mentors. Trading is no different, you need to find the best people in the industry and follow them closely. Rivkin has found that there are some immensely talented retail and professional traders who are willing to share their views to a community of traders at no cost.

Rivkin also takes a very optimistic view when it comes to the outcomes for retail FX traders, given that our business model benefits from clients who trade successfully over long periods of time. We are interested in client profitability due to the benefits of client retention in what is an otherwise transient industry. If you'd like a one-on-one consultation with an experienced FX trader to help you write your own trading plan, email us here.

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DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice and dealing services on securities, derivatives and superannuation (SMSF). Rivkin also provide SMSF administration and accounting services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.