Do some brokers deliberately cause you to lose?

[hhiusa]

Thank you to everyone for helping me. Like highburyfx has stated, I'm only interested in UK firms who spreadbet and being a beginner hope someone more experienced can answer some of my questions on here.

Bear in mind that I'm only playing with demo a/c at the moment as I don't want to jump in too soon...at least until I'm sure I'm successful with most of my trades.

If I may give an example....

Lets just assume I am with IG Index and have £2000 in my account. I put in a bet for GBP/USD @ 10000 to go UP at £1 per point. This bet is set to a GUARANTEED STOP LOSS of 9900 (100 pips below current price)

BUT! Due to some terrible news, the GBP/USD price collapses and shoots down to 9500 instantly.

So here are my questions:-

1. Is my stop loss guaranteed to STOP huge losses and me racking up a massive debt with IG?

2. Or would it still go through because IG will count this as a slippage?

3. Roughly what balance should I end up with in this scenario?

You haven't said what the trade value was. If you bought into something at 10000 and it cost you £2,000, then when it drops to 9900, you will lose £100 * (10000/2000) = £500 lose. This leaves you £1,500

 

[tomorton]

........ you will incur a significantly greater spread, which will be very detrimental to your profitability.

Guaranteed stop losses for me are like those extended warranty deals you can pay for. They seem a good way to sell insurance and make easy money but a poor way to buy protection against something highly unlikely.

The SB firm will immediately debit your account by a (significant) premium charge when you set the guaranteed stop. Of course, this premium is not refundable if your guaranteed stop is not triggered - like an insurance policy premium or warranty extension charge is not refundable just because you didn't make a claim.

You can't adjust your guaranteed stop level, so if your GBP/USD long goes straight up from your entry, your guaranteed stop can be left stranded hundreds of pips below, you've already paid for it and you're only allowed one per position.

Annoying. I'm really doubtful they're worth it.

 

[LON:RMG]

By the way do you work for the Royal Mail @LON:RMG?

I don't. It's just the IPO of Royal Mail was my first ever equity buy.

 

[hhiusa]

I don't. It's just the IPO of Royal Mail was my first ever equity buy.

So, you have been trading for two years now?

 

[LON:RMG]

So, you have been trading for two years now?

Yeah with equities. It has only been in the last few months I have started trading futures too. I had just turned 18 about the time of the IPO and could only just about scrape the money together to buy the £750 maximum - then I used the injection of cash to build up a portfolio.

 

[sharesr4us]

Thank you DowJones & Tomorton. I know it's expensive and would eat into my profits (if I make any, lol!) but don't you think it's an important insurance policy for beginners like myself? Why do you think it would never happen?

This brings me onto my next question.

1. Would a standard stop-loss (Without guarantee) still be able to stop if the market suddenly dropped?

 

[hhiusa]

Thank you DowJones & Tomorton. I know it's expensive and would eat into my profits (if I make any, lol!) but don't you think it's an important insurance policy for beginners like myself? Why do you think it would never happen?

This brings me onto my next question.

1. Would a standard stop-loss (Without guarantee) still be able to stop if the market suddenly dropped?

Yes, it just means you would be responsible for calculating the stop loss to prevent a negative balance and input the order yourself manually. Brokers with a guarantee will place the order for you so that you don't lose more than your initial investment.

 

[tomorton]

I find the expense isn't justified by the risk. Maybe if you were taking a massive position, but that would be mad money anyway.

A standard stop loss will only be executed at the price you set if price actually trades through there. If price leaps beyond your stop level, the firm will activate the stop but they will only do so at the price available at that time, they won't go back in time to an imaginary price and offer you a close at a level that was never available.

Largest gaps are usually overnight, between one day's close and the next day's open. Large gaps are rare in forex as its a 24hr market, excluding the weekend. Large overnight gaps are more common in equities, especially small caps. We've all seen 50% overnight gaps in equities (not just penny shares and micro-caps).

Some of the reasons gaps happen also do not apply in forex, e.g. oil rig exploded, Finance Director arrested.

PS: Of course, prices can gap for you as well as against you. But that almost never happens. To me.

 

[hhiusa]

Why would anyone put all of their money into such risky financial vehicles as futures? If you have been trading for years and only have a few thousand pounds to show for it, that doesn't seem very fruitful to me. Futures require a bit more experience than other financial instruments.

I find it a bit strange to start out investing with futures or CFDs before gaining more experience with less risky instruments. Would you start learning a new language at the expert level or start mathematics classes at calculus?

 

[highbury fx]

So the world isn't fair, fancy that. Maybe the UK should raise their standard to the US level. How any company could manage with £125k is beyond me. That is amount required by my broker to have a reg T account.

Another reason not to trade in the UK (as there are many), is that there are about 10x fewer financial instruments to trade, not to mention a dearth of liquidity compared to US markets.

There are 20+ stock exchange with more than 30,000 stocks in the US as opposed to one.
https://www.interactivebrokers.com/en/index.php?f=1563

Futures
CBOE, CBOT, CME, ICE US, NYBOT, NYMEX and One Chicago which @timsk mentioned as opposed to the intercontinental Exchange in the UK.

lots of things wrong with your post but I don't suppose accuracy is ever anything you've ever bothered with.

£125k is regulatory capital. it isn't the cash you have in the business to manage the day to day costs. To set up and launch a regulated brokerage in the EU will take about 8-12 months and cost around £700k. To run the business will cost you another £150k to £200k per month.

more markets and more liquidity in the US... I don't think so. The FX market is bigger than all the other markets combined and 70% of all FX business is done during London's hours.

its like you make it up as you go along.

the UK should raise our bar to US standard. Lol. I worked on Wall Street for 3 years for a big brokerage (tulletts) and all I saw was brits brought in from the UK to run the desks.

 

[Revorocks]

Thank you to everyone for helping me. Like highburyfx has stated, I'm only interested in UK firms who spreadbet and being a beginner hope someone more experienced can answer some of my questions on here.

Bear in mind that I'm only playing with demo a/c at the moment as I don't want to jump in too soon...at least until I'm sure I'm successful with most of my trades.

If I may give an example....

Lets just assume I am with IG Index and have £2000 in my account. I put in a bet for GBP/USD @ 10000 to go UP at £1 per point. This bet is set to a GUARANTEED STOP LOSS of 9900 (100 pips below current price)

BUT! Due to some terrible news, the GBP/USD price collapses and shoots down to 9500 instantly.

So here are my questions:-

1. Is my stop loss guaranteed to STOP huge losses and me racking up a massive debt with IG?

2. Or would it still go through because IG will count this as a slippage?

3. Roughly what balance should I end up with in this scenario?

Registered just to answer this, UK spreadbetter here.

1. Guarunteed stoploss is exactly what its called. It's a guarunteed stop. No matter what happens, they will honour that stop loss. It incuurs a larger spread though, so will cost quite a lot.

2. A normal stop loss, 99.9% of the time will work just the same. If it gets hit, your position will be closed and you will be at a loss, as you calculated.

With your example, risking £1pp with a 100 pip SL, if your SL gets hit, yes you lose £100.

The problem is with normal stops, if the market moves fast, say there's a crash or a major event, it will skip past your stop and your stop order does not get filled.
It means you incur a much larger loss than you originally planned.
This is very very rare though, but it does happen.

This is why they always put a disclaimer. LOSSES CAN EXCEED YOUR DEPOSITS.
Scary, but its a risk you have to take unfortunately.
And yes it does mean if there's a crash and you have a large long position, you can become massivley in debt if your stop order is not filled. There are stories of people with £100k accounts owing £3-500k after the swiss frank was unpegged, and other major events.

 

[hhiusa]

lots of things wrong with your post but I don't suppose accuracy is ever anything you've ever bothered with.

£125k is regulatory capital. it isn't the cash you have in the business to manage the day to day costs. To set up and launch a regulated brokerage in the EU will take about 8-12 months and cost around £700k. To run the business will cost you another £150k to £200k per month.

more markets and more liquidity in the US... I don't think so. The FX market is bigger than all the other markets combined and 70% of all FX business is done during London's hours.

its like you make it up as you go along.

the UK should raise our bar to US standard. Lol. I worked on Wall Street for 3 years for a big brokerage (tulletts) and all I saw was brits brought in from the UK to run the desks.

That is still nothing. You put words in my mouths buddy. I am curious to what statements you are referring to exactly. I only stated that I think it is ridiculous that the regulatory capital is so low. £700k to set up a regulated brokerage firm is still a drop in the bucket. That is less than the average cost of house where I live. Half of my neighbors could start their own then if that were case in the US.

According the London Stock Exchange there are 2416 companies traded on it. There are over 30,000 in the US. The use any simple screener will show that there are 2704 US stocks with average trading volume above 250K but only 800+ in London. There are 2947 companies with a market cap greater than $1 billion in the US and only 481 in the UK. The US dollar is easily the most traded currency in Forex. Any market that can be traded is bigger in the US than the UK. I would like to see how you came up with those numbers, like how 70% of the FX is done during London hours. FX isn't even the biggest market.

 

[new_trader]

Guaranteed stop losses for me are like those extended warranty deals you can pay for. They seem a good way to sell insurance and make easy money but a poor way to buy protection against something highly unlikely.

The SB firm will immediately debit your account by a (significant) premium charge when you set the guaranteed stop. Of course, this premium is not refundable if your guaranteed stop is not triggered - like an insurance policy premium or warranty extension charge is not refundable just because you didn't make a claim.

You can't adjust your guaranteed stop level, so if your GBP/USD long goes straight up from your entry, your guaranteed stop can be left stranded hundreds of pips below, you've already paid for it and you're only allowed one per position.

Annoying. I'm really doubtful they're worth it.

Who do you trade with? City Index? IG lets you adjust a guaranteed stop.

 

[sharesr4us]

Thank you to all whom helped me...especially Revorocks who registered specially to help me...thank you again. My biggest worry is that I put in a few thousand, put a bet with a guaranteed stop, but since I'm not constantly watching it due to other responsibilities, would IG cover me if there was a major crash.

@ Revorocks - Thats all I was trying to find out...i.e. the difference between the normal stop and guaranteed stop - in the event of a major crash whether I'm protected by only guaranteed stop or both.

@ hhiusa - Mate, although you've provided me with some useful info, I notice that you are a little defensive in any question asked. If you know your stuff, then surely what harm is there in helping beginners? Also this isn't a US vs UK debate and both countries are great in finance, but lets be clear that my questions are only regarding UK finances.

 

[hhiusa]

Sorry if I didn't provide you with enough info @sharesr4us. I wasn't trying to turn into a UK-US debate other than addressing some people statements. I hope you find a decent broker.

 

[tomorton]

Who do you trade with? City Index? IG lets you adjust a guaranteed stop.

Capital Spreads. Their guaranteed stops are a non-starter.

 

[Revorocks]

Thank you to all whom helped me...especially Revorocks who registered specially to help me...thank you again. My biggest worry is that I put in a few thousand, put a bet with a guaranteed stop, but since I'm not constantly watching it due to other responsibilities, would IG cover me if there was a major crash.

@ Revorocks - Thats all I was trying to find out...i.e. the difference between the normal stop and guaranteed stop - in the event of a major crash whether I'm protected by only guaranteed stop or both.

@ hhiusa - Mate, although you've provided me with some useful info, I notice that you are a little defensive in any question asked. If you know your stuff, then surely what harm is there in helping beginners? Also this isn't a US vs UK debate and both countries are great in finance, but lets be clear that my questions are only regarding UK finances.

No worries

As for brokers, I currently use City Index, they've been good.
Quick withdrawals, online platform and software is good. I would personally recommend them.

Thinking of moving to CMC Markets though. Also another great broker.
A couple of friends of mine have been using CMC, one for 6 months, another for several years. They both highly recommend.

With stops, it needs to be a pretty fast move to skip past them. It's only happened to me once and it wasn't by a large margin before the order was filled anyway.
At the end of the day, nobody really uses guaranteed stops. Too expensive for the risk. 99.9% of people just use normal stops and have no real issues, myself included.

 

[darktone]

sharesr4us, read this thread
other side of the screen
and listen to highburyfx

 

[tokyojoe]

sharesr4us, read this thread
other side of the screen
and listen to highburyfx

good revival, I read "the other side" when it first appeared........crackin' read !!

 

[sharesr4us]

Sorry if I didn't provide you with enough info @sharesr4us. I wasn't trying to turn into a UK-US debate other than addressing some people statements. I hope you find a decent broker.

Thanks mate...sorry if I sounded a bit upset...just was upset about something else and kind of took it out on you. Having played about with a few demo accounts, I've found IG's interface a lot more solid than others. The one I'm about to try now is CMC. Unlike City Index, it seems fast and reliable as IG, but it's interface seems very confusing. Maybe someone can help me on this.

No worries

As for brokers, I currently use City Index, they've been good.
Quick withdrawals, online platform and software is good. I would personally recommend them.

Thinking of moving to CMC Markets though. Also another great broker.
A couple of friends of mine have been using CMC, one for 6 months, another for several years. They both highly recommend.

With stops, it needs to be a pretty fast move to skip past them. It's only happened to me once and it wasn't by a large margin before the order was filled anyway.
At the end of the day, nobody really uses guaranteed stops. Too expensive for the risk. 99.9% of people just use normal stops and have no real issues, myself included.

I tried City Index, but found their interface to be very slow to respond. Whereas both ig index and cmc seem to be very fast at responding which I think is a very important feature to bear in mind...try out their demos. But I find CMC a tad confusing in placing orders. Try the demo and see if you can help yourself and me :cheesy:

sharesr4us, read this thread
other side of the screen
and listen to highburyfx

I couldn't find highburyfx's post in those 18 pages mate...