Joshua Raymond has all the answers when it comes to brokers, and those answers are going to be useful to you whether you’re an active trader, or even if you’re just considering trading. So what makes a good broker? What con tricks do brokers use to hoodwink their clients? What should you stay away from when it comes to brokers and their tactics? Joshua Raymond can tell you.
Joshua Raymond is the managing director of XTB and has had a meteoric rise to get there. He is well regarded in the world of brokers, and has a lot to say on the subject; all of it worth listening to.
Since it’s hard to tell who is a good broker and who isn’t right from the start, it’s important to think long and hard before you take the plunge and start working with one. The market for brokers is saturated, and there are many different regulations around the world – but that doesn’t mean that you can’t find a good broker. A quick Google search will give you a great start when it comes to finding a good broker for your perfect trade; you’ll soon see who the bad ones are.
For Joshua, regulations are incredibly important. XTB, for example, is regulated by the Financial Conduct Authority and that has a great reputation as being a good regulatory body. There are many others, some just as good, so look at where the brokers are regulated. Pick one that you know. There are certain protections under regulatory authorities that will keep your money safe and allay your trading fears such as money segregation. This means that the money that clients put into their accounts is ring-fenced and kept separate from the money in the broker’s account; it’s what Joshua does at XTB. In essence, it helps to keep your money safe. Not all regulators require this, but the Financial Conduct Authority does, which is one of the reasons XTB subscribes to it.
It’s also very much dependent on the client as to what broker they should use. Some brokers are more suited to beginners, some to people who can just manage without any additional care and so on. Look at what stage of your trading journey you’re on and then take a look at what the various brokers offer – what works for you? Which one ticks the most boxes?
Brokers and traders aren’t the same thing, even though many people think they are. Brokers do trade – each company will have its own policy as to how their brokers can trade. Joshua Raymond requires those working at XTB to report all the trades they want to make before they do anything, to ensure there is no conflict of interest. Most brokers probably have a similar policy – if they are good brokers. It makes sense; brokers need to be committed to trading and do it themselves to understand it and to know what to avoid when trading, and to show that they understand and believe in it. However, personal trading should always be secondary to the best interests of the client. That’s essential.
Brokers can make their money in a variety of different ways. Different brokers will offer different spreads, and that indicates their margins; it’s the amount of money they are prepared to make on a particular trade. It could be commission on equity trade, or even overnight financing. They also hedge their client trades and that can make them more money. It’s all geared towards making sure clients are trading otherwise brokers won’t be making any money. It’s important for a client to be successful.
It’s in the broker’s interest for clients to be trading for years.
Joshua Raymond also wants to clear up another common misconception; the idea that brokers make a lot of money when their clients lose. It’s just not true. What is true that – certainly at XTB – all client trades are hedged. The risk has to be managed. The risk committee sets up what risk parameters you can take; you can only take a certain amount of risk. That’s why it looks as though sometimes brokers do well when a client loses.
Finding a good broker is essential – there are definitely some red flags to look out for. Sadly there have been examples of bad brokers recently; they create a shell company and pretend they are in the UK when they’re not. Thankfully the regulators are clamping down on these ones now.
Other red flags include the broker not being regulated; that’s a huge red flag. There are lots of checks and balances that can be carried out if a broker is regulated and that will give you an idea of whether you want to use them or not. For those who aren’t regulated, you don’t have that ability to check up on them. Also, can you go into an office and speak to someone face to face? That proves the business is real and not a fake shell. Dodgy brokers are keen to take money from a debit or credit card, but if you want to withdraw money they say that will take time… that’s not the case; there is no reason why you shouldn’t get your money back within a business day. If they say otherwise, they’re not a good broker.
These bad brokers are so keen to get clients’ money, they will carry out all sorts of tricks to get it. Joshua Raymond has seen a lot of these tricks and knows what to look out for. An account that suddenly makes a large amount of money is something to take with a pinch of salt, for example – it could just be a trick that involves manipulating prices. Keep an eye on it and you’ll see what’s right and what isn’t.
What you can do to test your broker if you’re not sure is to use some small amounts of money and see how quickly you can withdraw it. That will give you a good benchmark to work from.
Joshua Raymond always has his clients in the front of his mind which is why he is pleased the cash bonus system is being banned as of the 1st August. The problem with them is that you are putting more money at risk than you would normally do, and that can cause big problems.
The reason for the ESMA marketing restrictions that are coming in on 1st August is to protect the client. What Joshua Raymond predicts is that this will mean clients will need to put more money into their accounts, and that they will hold onto their trades for a lot longer. This could be a good thing, or a bad thing. Only time will tell.
Another change would be in terms of margin close out; the changes will affect the broker and the client. It means the broker guarantees that you cannot lose more than the money that is in your trading account. Basically, the client will not owe the broker money.
The final change is that there will be a standardized risk warning, and within that risk warning you will be able to see what percentage of clients lose money. That will help you to decide on a broker.
The ESMA changes are only impacting retail customers. The next step up from a retail customer is an elected professional. If you are an elected professional, you can keep all the benefits you had before the changes come in on 1st August such as bonuses and cashback. However, what you won’t get is client money segregation – you’re telling the broker that you know what you’re doing, so you don’t need the extra protection (although at XTB this won’t be the case). The broker has to approve the elected element; there are some rules to adhere to such as the client has to have done 10 significant trades every quarter for the last four quarters where ‘significant’ means at least £50,000. You also need to have half a million pounds invested as cash, for example. You can’t just choose to be an elected professional and become one; there are qualifications.
At XTB elected professionals are going to be able to keep most of their benefits from when they were retail clients. The difference will be in the risk warning.
Joshua Raymond’s pearls of wisdom are well worth listening to.
We’ve both been in the industry for a long time and know that just like with trader educators, brokers were not all created equally… what should people, especially market newcomers, look out for when selecting a broker?
A common misconception held by many people who are new to trading think that brokers and traders are essentially the same thing when there are huge differences. Bearing this in mind, do brokers trade or is this seen as a big conflict of interests?
Now, many of us know the answer to this for the benefit of those who don’t… how exactly do brokers make their money?
What red flags should prospective clients look out for when selecting a broker – and know which ones to stay away from?
What dirty tricks can and do some of the more unscrupulous brokers engage in to drain their clients’ account?
ESMA’s (European Securities and Markets Authority) leverage restrictions will be coming into play on August 1st. What does this mean for traders?
Many firms are encouraging clients to become Elected Professional. How is XTB managing this process?
Josh, you’ve had a very illustrious career in the City, starting out at City Index and now Director of XTB. What pearls of wisdom would you give those wanting to follow in your footsteps and embark upon a career in broking (as opposed to trading!)
Where can people find out more about you and XTB?