Retail Forex Trading, Industry Improvements Needed
This article will compare and contrast where the retail forex trading industry started and where it has progressed to since retail trading became available to the public. We will examine the different parts of the industry that affects forex traders. Parts of the industry like retail forex brokers, forex educational providers, indicators and trading systems, and forex website quality.
Retail forex trading is a smaller sector of the overall forex market. Individuals can set up trading accounts with a forex broker and access the global currency market for intraday trading, swing trading, speculation, or position trading. Retail traders can also use margin and leverage, which is another attractive feature. In some retail trading advertisements, retail trading has been promoted as an easy way to profit, and retail traders must be careful who they give their funds to avoid fraud or scams.
The Start Of The Retail Forex Trading In The USA
In 2000, the CFTC won the authority to regulate forex trading and by 2008 most of the major problems were cleared up related to regulation of the industry in the USA. But more problems persist. When retail trading became available to online traders, the advantages over trading the stock and options market were very clear. Liquidity and leverage were built into the market. Equity, index and options traders worldwide became immediately attracted to the forex market. As of November 2012 this daily turnover had exceeded $5.0 trillion per day, and $1.5 trillion per day of this total was retail forex trading. Tens of thousands of people open retail forex trading accounts every year, and 24 hour trading and leverage are the drawing cards.
Retail Forex Trading Brokers
When retail forex trading first became available to individuals there was only a handful of brokers operating dealing desks. The situation facing retail traders was wide spreads and generally low quality executions and slippage, except for a few pairs like the EUR/USD. Most brokers have gone from dealing desks to direct access platforms and variable spreads, and immediate executions or straight through order processing. True competition set in and spreads have been dropping over time due to advances in execution systems and increasing liquidity. Executions and spreads are improving in favor of traders on trading platforms. Daily trading volumes are approaching $7 trillion per day for the total forex market, including the spot forex.
In the past account deposits were not protected, segregated or insured. More changes in the laws have place, providing more protections to retail account holders. Broker net capital requirements were raised substantially, and the number of introducing brokers started to drop substantially. Now, more brokers are offering FDIC type of insurance for deposited funds and segregating client funds as well. These are all strong positives for retail forex traders.
Forex brokers are regulated by different government entities. If you open an account with a broker based in the USA, the broker is regulated by the Commodities and Futures Trading Commission (CFTC). Here is a list of forex broker regulators from around the world.
Also, the brokerage area sector are introducing brokers (IBs). Introducing brokers are referring agents, referring retail traders to the primary broker for a fee. IBs are compensated by splitting the fee or spread income on each transaction for the parties they introduce to the primary broker.
Liquidity providers are also part of the brokerage space in the retail forex trading industry. Liquidity providers act as a market maker and stand ready to buy and sell currency pairs at specified prices. By having a lot of liquidity, forex trades execute faster and the market flows faster and smoother. Also, spreads become more competitive. Anyone can function as a liquidity provider, a commercial bank or even a retail trader who offers lots for sale or purchase.
The amount of educational information on broker websites has improved and this somewhat encouraging. Basic education about brokerage like how to place market orders or stop orders is presented on broker websites. Quality of broker websites has improved greatly over the years, as these websites are regulated. Introducing broker websites seem to be focused on marketing only and getting traders to open an account. Make sure you know what country the broker is domiciled in before opening an account, and the regulatory structure that protects your funds.
Forex brokers have no interest in you succeeding as a trader, they just want you to trade frequently so their profits rise. But be realistic, it's not their job to make you a successful trader. They are strictly an intermediary.
The amount of differentiation between brokers is becoming limited and the difference between any two forex brokers is now minimal. Regulation and competition has caused this to happen. Looking for a retail forex trading broker ? We offer our clients and website visitors a good quality forex broker selection guide.
Forex Education Providers
This part of the retail forex trading industry space is possibly the worst. There is a substantial number of forex education websites and many educational providers. There is a lot of information, but the information is mostly very bad, and dominated by ineffective technical indicators. The amount of educational material about trading the foreign is very high, but the quality is very low. Almost all of the information available on websites about how to actually trade the forex is completely wrong. Website after website with repetitive information like news calendars and technical indicators that do not present any complete or cohesive trading systems. This does damage to retail forex traders, who have to wade through the sea of bad websites looking for a reliable trading system.
Not only are the trading education websites mostly bad, but it can also be very expensive. There are also education providers charging up to $5,000 or more to individuals for forex education, but when it is all over the traders have no idea how to trade successfully. Remember that teaching a trader how to place a market order and what a Japanese candlestick is qualifies as "education". The rest of the educational content websites are related to ineffective technical indicators. Technical analysis indicators do not work. You will still be lost and have no idea when to place a trade with this type of education. Do not spend money on these expensive programs.
Much improvement is needed in this part of the retail forex trading industry, and traders need to not spend any money at all until they are completely sure of what they are getting. To compound the issue, most of the websites with free information about forex trading are just as bad or worse.
We can suggest you evaluate the Forexearlywarning trading system and education program to compare to any other trading system you see. You can start by looking at our 35 forex lessons, a complete description of our trading system, and there is no cost to do this. Then compare our trading system and education program with any other system you see and we believe you will be very happy with our ability to show traders how to succeed.
Indicators and Trading Systems
Retail forex trading is somewhat dominated by technical indicators. Traders see the indicators on their trading platforms and the traders presume that they work to make pips. Unfortunately, technical indicators don't work at all, creating frustration among traders. All traders use indicators differently and without regard to any current market condition, trading sessions, or consistent written trading plans, and none of this seems to be changing. This sector of the retail forex trading industry is a mess, with websites everywhere promoting standard technical indicators.
One other sector of the retail forex trading industry is robots and expert advisors. The concept of a computer program that executes decisions and trades for you is a great concept. In practice and real trading, these expert advisors and robots do not work and are extreme time wasters. Forex robots are based on the same failed forex technical analysis indicators that traders use in manual trading. Remember, the vast majority of retail traders fail and they all use technical indicators and robots. It would stand to reason that you would want to completely avoid robots. Robots do not account for trading sessions, news drivers, trending versus choppy market, consolidations, individual currencies, and about 10 other variables, so robots will always fail.
A complete trading system would include full instructions for how to analyze any currency, any pair, or the entire market. The system would give you accurate indicators for entering trades, and full guidelines for managing money and profits. To our knowledge, few if any complete trading systems exist in the retail trading space. If you check out the Forexearlywarning trading system carefully we have a great alternative to standard technical indicators and scalping.
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Forex Signals Providers
Forex signal providers and their associated websites are part of the retail forex trading industry. Signal providers generally charge very high prices, some up to $500 per month and most of them go out of business at some point. Some "free signals" websites require a live trading account and the signals are worthless. These websites, upon closer inspection, are a "front" for an introducing broker operation. Forex signals providers and forecasting services are very secretive about their methods, "black box" signals with no explanation of how the signals are arrived at. Forex websites that offer trading plans basically do not exist. Forexearlywarning offers trend based trading plans and accurate live signal for 28 pairs and very accurate trading signals is one of the bright spots in this part of the industry.
Forex Blogs And Websites
The forex blogs and miscellaneous forex websites we see have a lot of information, some of it good, but mostly repetitive. Very little information on these websites is helpful for analyzing the market or showing traders how to trade profitably. All knowledge of the forex market is great, but if you want to trade and make a lot of pips, few if any blogs will help you to do this. Many forex blogs have computer generated content and a lot of advertisements or repetitive information available elsewhere. Forex blogs are fine, but a complete and profitable trading system and documentation would serve forex traders much better.
Forex Forums and Live Trading Rooms
Another sector of the retail forex trading industry is social interaction between traders. There are a large number of forex forums available to forex traders, a few of them are quite popular.
If a traders forum is an open forum and unmoderated, it can become a huge problem. New forex traders can get led in many wrong directions with the technical indicators discussion. Traders can waste months and years on forex forums and not learn how to trade at all. We think forex forums and trading communities are a good idea, but they always get crushed under their own weight. Having hundreds of trading systems confuses traders. All you need is one effective system that is fully documented, and you have eliminated the need for forums altogether, other than discussion of one great trading system.
New traders and forum participants cannot get their questions answered, and the forums have a lot of people arguing and flaming each other. The discussion of robots and expert advisors is a prominent part of most forums, however expert advisors do not work at all, and 99% of forex traders do not know how to program.
Live forex trading rooms are also advertised to forex traders on the web. Most of these websites were one page advertising websites with no information at all and a registration page to gather your email and phone number. Some of these websites are "fronts" for a broker or IB with a page that says "sign up for an account here". One website offered "mentoring" for $1500. Some live forex trading rooms where we could see the pricing advertised were priced at $100 per month or higher.
Forex Funding Providers
Proprietary trading websites are also part of the retail forex trading industry. A proprietary forex trading firm offers to fully fund a live trading account for retail traders. Then you can trade the live account and split the profits with them. Programs like this are great if you do not have the funds for your own live account but are an accurate trader. We think that some of the funding providers are doing a great job and funding forex traders accounts. We see the funding providers role becoming more prominent in the industry and many more thousands of traders getting funding.
More recently, we have seen many capital and funding providers who are no longer selling training programs to quality for funding, and we view this as a big improvement. There is a large amount of capital available and these capital providers will also cover your trading losses. Some of these companies have refundable fees. Traders can research how to obtain funding for your live trading account in this great article on our blog.
Private Money Placement
There are people advertising on the internet that are looking for money from individuals to invest in trading the forex market. These people promise huge returns to the investors. Some investors lose their entire life savings giving money to strangers and having them move all of their money offshore where it cannot be access or returned. Some of these criminals are prosecuted, but the money is never returned to the investors, the money is gone. Anyone looking for a shortcut by giving their money to someone who is advertising for and asking for money for forex trading is in danger of losing all of it. We advise extreme caution when giving away your money to someone to trade for you, especially people with no website or any way of vetting them correctly. This part of the retail forex trading industry still needs to be cleaned up and likely never will be.
Forex Advertising
Every day forex traders who do web searches are bombarded with aggressive advertising, endless popup ads and click ads on websites, and an email inbox box full of more spammy ads with no "unsubscribe" button on the email, which is required by law. Many website are pushing you to open a live brokerage account, selling robots, and expensive education programs. Some of it is shady. All of this gives the retail forex trading industry a bad reputation. This needs to be cleaned up but we see no end in sight to this.
Forex Trade Shows
After attending many forex trade shows, here are our observations. Many of the exhibitors and presenters represent larger companies, high cost education providers, and brokers. They are the only ones who can afford to be exhibitors due to the high cost of exhibiting. If you would like to open a forex brokerage account, trade shows are great because so many brokers are represented in one place and you can ask a lot of questions. But beware of the high cost services and high cost forex education companies who exhibit at these shows.
Impact On Forex Traders
At the epicenter of all of these different sectors of the forex industry is is forex traders. When forex traders do a web search, they find lots of information, but the amount of good information is small and it is surrounded with vendors and looking to take your money, ineffective technical indicators, brokers wanting you to open an account, and lots of advertising. When a forex trader is on the web searching for information on how to trade the market profitably, the information is limited or very thin, at best. Forex traders really do want to trade successfully, but face these barriers and roadblocks when searching the web.
Better Alternatives For Retail Forex Traders
Forex traders need a complete trading system and an effective trading system that produce pips. They need to know how to analyze the market, any currency, or any pair. Traders need to know when and how to enter trades and how to manage the trades. The prices for these systems need to be reasonably priced or accessible. Traders need all of the documentation for the system they are using, so, as a consumer, they can make better decisions when comparing systems. We invite all traders to check out the Forexearlywarning trading system. It is a logical and effective system for making pips, and the cost is very low. All of our learning programs are free including our illustrated articles, video library and weekly webinars. Traders need a trading plan but less than 5% of them probably have one. They need common sense and transparency from vendors and service providers they can trust.
Her is an example of our trading system which is available to retail forex traders. It shows our live signals system, The Forex Heatmap®, and the example price movement.
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In this example the CAD (Canadian Dollar) was weak and there was some AUD (Australian Dollar) strength in the market also. With a great trading system like this, traders can make great pips across 28 pairs while not being ambushed by high cost education or technical indicators. The Forexearlywarning trading system is a bright spot for retail forex traders.
Conclusions about the retail forex trading industry: Some areas of the industry are in good shape like broker websites and spreads, availability of funding for great traders, and Forexearlywarning's trading system and free education. Traders still need to be wary of the high cost education providers, technical indicators, signals providers, forex forums, advertisements and scams. Some of these problems may never be fixed. Always look deeply into the matter and ask questions before you commit to any pricey trading system or education, be a smart consumer. Do not fall into the same traps that others before you have fallen into.
On the bright side, companies like Forexearlywarning provides great forex education at no cost with a low cost and profitable trading system. Combine this with companies that provide trading capital and we see a brighter future ahead.