They make it seem so easy to just jump into the foreign exchange industry and begin trading. But there are actually plenty of considerations to make. Steve Plant, the CEO of WhichFX, has compiled a list of the dirty tricks of the FX industry to be aware of when planning currency transactions.
As an international small business owner, I am all too familiar with the complexities of the foreign exchange landscape. When trying to arrange a foreign exchange (FX) transaction, initial dealings with banks are often frustrating due to poor rates and high commission, which are often particularly unfair to smaller businesses. As such, many turn to brokers to secure more fruitful deals. This can often be overwhelming, however, as different brokers offer varying rates, commissions, and hidden costs.
It can be difficult to cut through this cacophony of brokers, who often solicit unwanted quotes once you’re on their books as they’re hungry for your business. They may appear good on paper but when it comes to initiating the transaction the rates and spread have completely changed. This is thanks to the inaccessible nature of the FX marketplace, perhaps cultivated by banks and brokers so they can hold a monopoly on foreign transactions.
Banks take advantage of the trust placed in them to provide good value and competitive services, making high profits off small businesses’ FX transactions, giving you rates that differ vastly from live interbank rates.
Brokers offer honeymoon rates to attract new customers but then slowly increase the spread (the profit the broker makes on each transaction at the clients’ expense) once a relationship has been established.
Some brokers refuse to use new services that drive down the spread, reducing their profits but maximising the value for clients.
Aggressive sales techniques keep you trapped in the honeypot. Brokers call clients with unsolicited sales calls, often creating a sense of panic by suggesting now is the best time to conduct a transaction as rates are about to take a turn for the worse in the very short future.
Broker comparison sites are misleading by only comparing rates, putting advertisers at the top of their lists, and omitting commission and hidden fees.
SMEs should avoid banks, turning instead to brokers, but beware, and tread the ground of the FX landscape carefully. Frequently shop around to take advantage of honeymoon rates to try and find the best deals.
In my own experience, I often found it frustrating trying to find the best deal and ended up spending countless hours consulting brokers, distracting me from other aspects of my import/export businesses. As a result, I founded WhichFX.
WhichFX is the first live broker comparison site and puts brokers in competition with each other to bid on FX requests, driving down the spread and giving SMEs quotes as close as possible to the live interbank rate. Rather than spending hours on the phone haggling with brokers, WhichFX provides you with a live quote in 15 minutes.
Due to the progressive nature of the WhichFX platform, some brokers have refused to sign up to it as they want to maximise their profits, even though this means their customers would get better FX deals. This illustrates the established FX industry as self-serving and unwilling provide small businesses with the best foreign exchange deals possible.
Welcome to Finance Monthly's countdown of the Top 10 Greatest Trades that the trading floor has ever seen. We take a look at each trader, the audacious move they pulled off and where they are now.
Scroll through to see who tops our list.
10. The 1929 Short - Jesse Livermore
Result: $100 million profit
Livermore can be classed as one of the world’s pioneers in terms of shorting the market.
His first attempt was shorting the market by selling Union Pacific just before the San Francisco Earthquake of 1906. The pay-out was £250,000 but that was only the beginning. He followed that up by shorting the market again in 1907. As the stock market crashed Livermore took home $1 million for his efforts. Always looking for the next target, he concentrated on the wheat industry in 1925, with another successful short that earned him $3million.
Livermore was gaining a significant reputation but his real coup de grace would make his earlier trades pale in comparison. In the early autumn of 1929 the Dow Jones is up five-fold in the last 5 years and the euphoric atmosphere that pervaded the entire floor wasn’t shared by Livermore. As the money flowed in reaching an $8.5 billion high, it got to the point where the outstanding loans had exceeded the current amount of money in circulation. In September, as the stocks began to level out, Livermore gambled on his biggest short, which took place on that fateful day in 1929. Looking for a bigger haul and seeing what was coming, Livermore shorted the entire market. As the US Financial sector went into meltdown, Livermore earned himself $100million which in today’s market would equate to a $1.4 billion-dollar haul.
Incredibly, Livermore was declared bankrupt and was banned from the Chicago Board of Trade in 1934, just five years after his greatest success as an investor. No one knows exactly why and indeed how he lost all his money, but his reputation as one of the best ‘shorters’ still stands to this day.
Next: Shorting Black Monday
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Next up we spoke to David Bily who introduces us to Vantage FX - an Australian regulated forex broker, providing traders of all asset classes’ access to global markets. As Vantage FX are an ECN broker and not a market maker, the company’s traders experience lightning fast trade execution and some of the tightest interbank grade spreads. Whether you’re an indices, commodities or forex trader, Vantage FX has a trading solution to meet your individual needs.
One of the things that Vantage FX has been growing very aggressively for, in the recent months, is the company’s reputation and transparency – could you tell us a bit about the company’s ethics and priorities towards its clients?
Regulated by one of the most respected regulatory bodies in the Australian Securities and Investment Commission (ASIC), our increased reputation within trading circles has been a testament to the work that our entire team at Vantage FX continues to undertake.
Vantage FX is a true ECN forex broker, meaning that there is no conflict of interest or dealing desk intervention between Vantage FX and our clients. Whether you’re a relatively small trader, or a consistently profitable professional, the spreads you see are the spreads you get. Transparency is as simple as that.
You and your team have been pivotal in managing the transparency with the company’s clients and potential clients – would you evaluate your role and its impact over the last year or so?
I’ve helped to oversee this transition from a classic phone sales model, to a fully integrated digital marketing driven sales approach. This integration has helped us brand as an honest and transparent ECN forex broker, who basically have nothing to hide behind a dealing desk curtain.
In today’s online environment of public social media, forums and review websites, there really is no point in hiding away from being a part of the greater trading community or criticism. It is integral for transparency that our team is always on hand to address any online client issues up front and in full view of the public.
What are the most common challenges that you are faced with in your role? What motivates you about it?
My role within Vantage FX is to oversee the entire sales and marketing operation. Within the forex trading industry, the sales and marketing teams simply must be working side by side in order to achieve a consistent message to both existing and potentially new clients.
Changing the thinking of traditional corporate structure has been challenging, but the agility of our talented staff here at Vantage FX certainly hasn’t come as a shock internally. It’s the people that make a business and I could not be more proud of my team!
Vantage FX has been recognised worldwide by a number of organisations and publications, including the Forex Awards and Finance Monthly’s FinTech Awards. What do these recognitions mean for the company?
The diversification of awards that Vantage FX has received across numerous categories show that we are so much more than just a ‘forex broker’.
While ECN forex trading will always be our core business identity, the ability to offer world class trading of indices and commodities on our industry leading MT4 platform, has seen us recognised in a more broad sense.
We are proud that Vantage FX is being recognised on the world stage and will continue to use such accolades as motivation to keep moving in a forward direction.
What is your outlook for the future of Vantage FX for 2017 and beyond?
Major IT infrastructure and customer relationship management upgrades are two business critical projects that are still within the implementation stage. The full benefits of the upgrades will soon be felt but patience here is key. We simply have to get it right.
In terms of sales and marketing, our new proprietary CRM system is going to revolutionise the way that affiliates and introducing brokers do business with us, putting them in full control of their own dealings with us.
We will continue to allocate our sales and marketing budget smarter, not necessarily wider. Learning from our past and continuing to innovate moving forward will be key.
The future of Vantage FX is certainly bright!
