Your first step to trading success…
I remember when I opened my first trading account…
My fingers were actually shaking and I remember thinking to myself: “Wow, I can actually sit at home, click some buttons and just make money? Sign me up.”
Of course, I’ve since learned that trading involves more than just clicking a few buttons and making money.
But setting up your trading account is a very easy process, won’t take you long and, once you’re done, you’ll be all ready to go and start trading.
Choosing a broker or spread betting platform can be very difficult, as there’s so many to choose from.
And with so much “positive” marketing in the industry, it can be hard to know who you can trust.
Plus there are also several different broker models, which makes things even more confusing.
So before I tell you my recommendation, I’ll give you a brief overview of the different types of broker. I’ll begin with the highest risk, but most profitable…
Spread betting platforms/market makers/B book only brokers
These are the brokers who always take the other side of your trade. You are trading against them, not other traders.
That is, if you place a buy trade they will create a market for you and sell to you, and vice versa.
There are actual human dealers on the other side of your trade, working on what is known as the ‘dealing desk’.
These brokers know that trading is very difficult and understand that many traders (especially beginners) will do the wrong things over and over.
And sometimes they can take advantage of this…
Some of these types of brokers do some ‘shady’ things with your order when you submit it (and they get away with it as they essentially have full control over the price and platform).
Issues such as spread widening to stop you out; slow order processing during big news events; and problems with closing orders can occur with these brokers (but equally can occur with other broker models).
I’m not saying all spread-betting platforms or B book only brokers act like this…
And in fact, these companies take on huge risk on their side too, since they take losses when people win (unless they are hedging winning and losing traders, which means they tend to only make a tiny profit on the spread – the difference between the buy and sell price of an asset).
CMC Markets and IG Index are examples of market-making brokers.
The following non market-making brokers are for Forex & CFD (Contracts for Difference) traders in the main…
Hybrid brokers will either push your order out onto the open market and charge a commission (or take a spread mark-up), if they think you’re likely to be profitable, or trade against you if they think you’re likely to lose.
They therefore take maximum profit on losing traders and reduce their operating risk on winning traders – since the order is paired with another order at the broker liquidity provider (where the broker links to the larger market and gets its pricing from).
STP (Straight Through Processing) brokers are kind of sneaky. They’ve essentially automated the dealing desk process, so they can advertise there’s no dealing desk (each order is sent to and executed on the real market, unlike with a spread-betting company) but use complex algorithms they’ve created to manage their risk.
They’ve got rid of the human element involved in a dealing desk and reduced their operating cost of hiring dealers while they’re at it.
True ECN are brokers are really the best that you can use…
ECN stands for Electronic Communications Network. Here the broker merely finds a buyer for your sell order and a seller for your buy order, and pairs them together – instead of trading against you like a market-making broker would.
You are dealing directly with other traders, rather than dealing with a middle man who puts all the risk together.
ECN brokers are only really beneficial if you are putting through large orders, as most ECN brokers offer discounts if you trade a specific frequency per month (since with ECN you pay the spread and a commission per trade).
Whether you go with a market-making platform or trade through a broker is up to you.
I’m going to give you my recommendations in each category – which you can choose to follow if you wish.
I want to make it clear that I am getting absolutely no ‘kick-backs’ or anything like that for recommending these to you.
And if you’d rather go with a different platform, that is entirely your choice. In fact, you may already have a platform/broker and you may be happy with them – which is great.
If you wish to trade using a broker, then my recommendation is Pepperstone.
I personally know the new CEO and the chief market analyst here, and I trust them and their practices implicitly. They are also fully regulated by the Financial Conduct Authority.
So if you wish to trade FX and CFDs then that’s who I’d go to. They offer a demo account so you can try them out at no risk to your money.
However, I know that many Trading Point readers want to spread bet (to take advantage of the tax-free returns).
Spread betting is also easier than trading, as 1.00 in position sizing is equal to £1, whereas when trading some assets via brokers who send orders to the open market, you must adjust your position size based on the monetary cost of one contract, and the cost can change based on which asset you are trading.
This is based on the sheer number of assets they provide for traders to trade on, and the opportunity they give for traders to short equities, without having to borrow the shares first.
Again, both of these companies offer you a demo account where you can practise using their platform to trade, at no risk to your own money.
And they are also both fully regulated by the Financial Conduct Authority.
How to set up your account…
Before you sign up for a live trading account, I recommend setting up a demo account.
A demo account is a really useful tool for those new to trading… it allows you to familiarise yourself not only with the dealing platform and how it works, but with exactly how the markets move in real time, and how you can interact with them.
In fact, even when you are more experienced you can still get a lot out of a demo account. You can use it to test new strategies, or refine you existing approach if you feel it needs some fine tuning.
Setting up a demo account with any of my recommended brokers (and indeed most companies that offer them) is pretty simple.
You just go to the home page (https://www.ig.com/uk/welcome-page for example) and then click on ‘Create Account’ or ‘Open Account’.
For a demo account, the only details they’ll ask for are your name, email address, and phone number. You’ll also have to create a password for logging in.
When it comes to setting up a live account you will be asked a few more contact details, and you may even be asked to provide proof of ID.
For this, a passport or driver’s licence and recent bank statement or utility bill will be enough.
You will also have to pass some basic appropriateness questions (I won’t guide you through these, since that would be breaking regulations) and go through a ‘Know Your Customer’ process.
This is to make sure you aren’t a politically exposed person, don’t have any fraud charges, are not underage, and actually live at the address you say you do.
Being on the electoral role helps a lot with this process and speeds it up greatly – many ‘Know Your Customer’ programmes are able to search the electoral role for your data.
Getting set up is really not difficult and can be done within a few minutes.
And your account can be verified and ready to use within a few hours.
If you have any problems opening your account (either demo or live), most brokers have excellent customer service teams on hand to advise you.
And you can always contact me if you’re stuck, and I will help as best I can.
How to view charts and execute trades…
Most brokers will also offer you a platform to trade via, the most common being MetaTrader 4. This will most often be offered as a download link once you have opened an account with your broker of choice.
For many spread betting brokers however, you tend to have to use their dedicated platform – the reason being that it is easier to control the backend this way.
If you do decide to open an MT4 account, you’ll need to sign up with your name and email address. Once you have opened your account, you’ll be sent an email with full instructions of how to complete your download of the MT4.
Once completed and you are logged in, you’ll have your price feed available to you.
Funding your MT4 account is simple too, and many brokers accept a variety of payment methods including credit/debit card, bank transfer, PayPal, Skrill and Netteller (not every broker uses the latter three, for compliance reasons).
Your funds will be kept in a segregated bank account, with protection up to £80,000 under the Financial Services Compensation Scheme.
When your funds are approved by the broker, you should be able to view the amount deposited in your MetaTrader 4 account.
If you are not using MT4 and are using the broker’s own platform, you can simply deposit straight via the platform’s website in the “my account” dashboard.
It really is up to you whether you download and use MT4, or stick with using the trading dashboard/platform offered on the broker’s website.
Again, if you have any questions on any of this – simply hit reply to this email and send them in.
Brokers are not your friends…
I’ve already mentioned how some brokers operate some ‘shady’ practices, in order to squeeze money out of their clients.
And that’s not the only dubious practices that go on in the industry.
At the end of the day, the broker is a business trying to do what any business does – make money.
In order to do that they need clients – clients that are using real live accounts and not demo versions. So they employ sales traders to drum up new business and grow their revenue.
I’ve personally worked as a sales trader before, and this meant calling clients and developing new business for the brokerage.
It was my job to encourage traders – including new traders like you – to deposit money in to their account.
Now, sales traders have different KPIs (Key Performance Indicator – a measure of how well they are working or, in other words, how much money they are making their company) to hit.
My own KPIs were based on first deposits, redeposits, new clients, deposit size and volume (amount and size of trades).
In order to hit those KPIs, many sales traders employ sales techniques which run opposite to ‘good’ trading.
If you are contacted by a sales trader, my advice is simple:
Don’t be pushed about by the guy on the other end of the phone to deposit money if you aren’t ready to start trading…
Or worse, to deposit larger amounts of capital than you really feel comfortable doing.
Only start using a live account when you are ready and never trade with money that you can’t afford to lose.
And remember: your broker is not your friend. Their ultimate goal is to make money… and you are the one they’ll make it from.
Having said that, it is YOUR trading that has the most effect on whether you will be successful or not.
It’s easy to blame a broker for a loss, but at the same time, if you find your broker is messing you around, there are hundreds of others to choose from.
There comes a point where, if you keep losing, you have to take responsibility.
Conversely if you keep winning, take responsibility then as well – and enjoy it!