A few thoughts on Forex brokers and trading in the UK

My long time readers would know that I don’t normally comment about financial matters, but today I will make an exception. According to FT, forex trading has gone up drastically over the past year with the number of retail investors increased to 6.5m. The effect is largely attributed to Covid-19 which causes more people to look into the financial market to supplement their income.

But authorities are starting to get concerned with many CFD providers since it entails with high risks and most of them are not as reliable as they put out to be. 2020 was a great year for many brokerage platforms, many countries have seen increased in number of sign up and deposit amount.

At the moment online brokerages in UK are regulated and licensed by FCA, and Holly Mackay from Boring Money argued that “it’s incredible that CFD providers are regulated in the same way as the investment platforms.” The reason is due to the difference between trading and investing. Most traders who use CFD to trade for price fluctuation do not share the same level of risks compared that with investors who invest in stocks and bonds – and it is evidenced by the disclosure of “Over 70 per cent of customers lose money trading CFDs” commonly found in most brokerage websites.

CFD means contract for difference and it is a financial instrument that allows traders to trade in and out of the price of its underlying asset without holding its ownership. It is a more efficient and effective way for traders.

Hence, regulating both of them in the same manner do not make any sense. By applying traditional financial rules and regulations on CFD brokers like Plus500, eToro, and others are going way too easy for them. I will be expecting the public and relevant authorities to take this matter seriously since trading is high risk endeavour and most people who lose money end up losing more than they could effort – part of it is due to leverage or trading on margin.

For example, a trader with $1,000 deposit and leverage their trade to $10,000 or ten times their original capital, and in the highly likely even of a 10% drop, they would wide up their entire account. Many traders would argue that they have their stop losses in place to prevent losing more than they could afford.

But liquidity may prove to be a problem when there aren’t enough trading volume to satisfy their stop loss price level, in other words, even if you have set a stop loss the asset price fall may surpass and your order may not be fulfilled resulting in catastrophic losses.

I know that many readers would wonder what would my recommendation be and I am very reluctant to offer any advice since i do not wish to bear any responsibility should the recommendation turns out a poor choice. If anything I’d recommend readers to check out ForexToStocks’ list at best Forex brokers in U.K. article here.

What about zero-based commission brokerage

Zero-based commission is the worst form of offer for any serious investors or traders. First of all, there is no such thing as free. Have you ever wondered how do they make money if they do not charge you any commission? There are two known ways. Firstly, they could route your oder to High Frequency Traders who front run, allowing HFT traders to exploit your orders for profit. Secondly, brokerage can charge you costly spread between bid and ask prices. To the amateur, they may seem like they are not paying for commission, but in actual fact they are paying more than they would otherwise with traditional brokers that charge a commission fee.

“…one of the best bloggers in Britain” — Nick Cohen

Welcome to Jack of Kent, the personal website of liberal journalist and lawyer David Allen Green.
 
You can read the Jack of Kent blog here.  My old site is still over at http://jackofkent.blogspot.com/.
 
I write regularly for the New Statesman and The Lawyer websites, and you can also follow me on Twitter and Facebook.
 
I can be contacted at [email protected].

Three visible paths out of the current Brexit fog

So where are we now on Brexit?

We are in a fog.

We are in a situation the outcome of which nobody can predict, at least with any certainty.

There is no pundit, no official, no politician who knows what will happen with Brexit.

In this fog, however, there are paths which are currently more visible than any others.

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First, the UK will leave the EU by automatic operation of law on 29 March 2019 – that is, unless something happens to prevent it.

In domestic legislation, the European Communities Act 1972 is also set to be repealed on 29 March 2019.

So this is the default predicament – the quickest way to the bottom of the slope.

Nothing more need to be done for these two legal events to happen, and for these events not to happen will take substantial effort.

This will be the path of least resistance, even if it would be a disaster in practice.

But it is not the only path.

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The second visible path in the fog is accepting the deal.

The deal has been negotiated by both sides, and there is a single agreed text for both sides to now endorse and ratify.

The EU has already endorsed it senior level though the European Parliament has yet to approve it or veto it.

Signing this agreement would, for the UK, to be path of next-to-least resistance.

The problem here is that it seems that there are not enough MPs to approve it.

If there is not not enough support in the Commons, the UK can either drop back down to the path of least resistance (a no deal Brexit as above) or somehow do something else.

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If the EU is sincere when it says it does not want to re-open negotiations, then the current deal will be the only deal on offer, regardless of whether UK seeks extra time for a referendum or otherwise.

In other words, the choices above will not change.

(I cannot see any political appetite on either side for my preferred option of abandoning the Article 50 process, and for the UK and EU to negotiate the withdrawal and relationship agreement together as a single treaty, for as long as it takes.)

And so the only other option would presumably for Brexit to be abandoned altogether.  Only “remain” remains once the other options are discounted.

That is the only other visible path, but it will be quite a climb(down).

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A number of good and sensible people can see other things in this fog, paths leading elsewhere.  I hope they are right, and I hope they will forgive me for not being able to see these other paths out of the the current mess.

But a genuine worry must be that the UK government continues to take the path of least resistance and falls into a no deal scenario.

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