Brokerage News: Plus500 fined £205,128

It has come to my attention that on the 17th of October 2012 Plus500 were fined £205,128 for breaches of FSA regulation. The fines were for breaches of two different pieces of FSA regulation. The statement by the FSA is as follows: 

‘With effect from 17 October Plus500UK Ltd were the subject of a Final Notice in respect of breaches of SUP 17 and PRIN 3 and fined £205,128. The breaches involved a failure to report to the FSA reportable transactions in timely and accurate manner. For further details please contact Ken O’Donnell on 0207 066 1374 or Neil Gamble on 0207 066 1884.’ 

SUP 17, is part of FSA legislation which requires that regulated firms report certain financial transactions to the regulator. This piece of legislation is lengthy and detailed with it not being clear where exactly Plus500 slipped up. For example the opening of each CFD position must be reported in a timely manner to the FSA in the correct format including various details in accordance with SUP 17 Annex 1. It appears the Plus500 were given several warnings regarding the slow reporting of such details. With the new regulations requiring that all re-portable transactions are reported by the close of that business day. After their behavior was not modified and improved they were given a fine. 

It has been reported that Between 29 June 2010 and 5 November 2011 a total of 1,332,000 reportable transactions were undertaken by Plus500. Plus500 failed miserably failing to report any of these transactions accurately and further failed to report 189,000 of them at all. This is quite shocking and Plus500 are the first regulated firm to punished under the new punishment policy.

PRIN 3, stands for Principles 3 it seems that this behavior of Plus500 was deemed to be in breach of the general principles of the FSA. Which is probably why Plus500 were given such a large fine, however no further disciplinary action was taken against Plus500. Plus500’s fine was reduced by 30% as they co-operated fully with the FSA’s investigation. The severity of the fine suggests that Plus500’s breaches were considered to be quite severe, significantly decreasing Plus500’s overall reputation.  

Full details of the FSA’s ruling can be found here.

CFD Review: SunbirdFX

Important Facts 
  • Regulation: SunbirdFX is the trading name of Sunbird Trading limited of Seychelles and appears to be a completely unregulated entity. Though they do apparently have offices in Ireland.
  • Instruments: The offer 27 different currency pairings, as well as offering a limited number of commodities including Oil, Gold and Silver. 
  • Special Features: Nothing particularly unique about at the experience at Sunbird Forex. 
  • Leverage: Up to 1:100
  • Minimum Deposit: $100 
The Platform 
SunbirdFX offers MetaTrader 4 & 5, as its primary trading platforms. Many will already know of the MetaTrade platform as it the leading platform for retail FX trading, with numerous brokerages offering MetaTrader to it’s clients. The Sunbird MetaTrader platform doesn’t differ much from the standard MetaTrader platform with Sunbird Forex allowing it’s customer to scalp and use Expert Advisors without any limits. Sunbird also offer the MetaTrader for the mobile allowing their traders to trade while on the move. This is a clever move by SunbirdFX as on the move trading is set sore within the next few years. While Sunbird offers the standard MetaTrader platforms as well as the mobile version there is no webtrader or standalone download platform to download. However this will probably not be much of a problem for many. Especially as Sunbird is one of the brokerages that offer support for ZuluTrade allowing their clients to use the ZuluTrade platform to copy others trades. 
Special Features 
There is nothing particularly remarkable or unique about the Sunbird offering however their are a number of things that traders might be interested in. For example the support for ZuluTrade, which I have mentioned already might attract some people to SunbirdFX. The fact that they allow unlimited scalping may also attract others, but apart from this there isn’t much unique about the offering from Sunbird. 
The Spreads on offer at Sunbird are floating and there website the quote both their target spread and average spread for each instrument. The average spreads vary a great deal with some being really quite competitive while others being wider than at many fixed spread brokerages. There is always a bit of a problem when interpreting average spreads, first you need to realize that the brokerage may not be being honest or is displaying average spreads from a favorable period of time. All in all though when it’s just down to spreads it appears that SunbirdFX remain pretty competitive with a number of bigger brokerages.  
Customer Service 
As I have already said SunbirdFX is the trading name of Sunbird Trading Ltd. a Seychelles based and unregulated operation. However it is apparent that Sunbird’s major customer service center is based in Ireland, though Sunbird do offer toll free numbers for those in other European countries such as the UK and Italy. I have seen a number complaints made about slow withdrawals at SunbirdFX, but it appears that Sunbird at least do there best to resolve these problems. Thus the customer service at SunbirdFX has a surprisingly good reputation considering the fact that Sunbird are an unregulated entity. I haven’t been able to find out much about SunbirdFX’s parent company Sunbird Trading Ltd. due to the fact they are an offshore entity, which is always a little worrying. 
A the time of writing SunbirdFX was a completely unregulated company with there being no financial regulation in place. A number of sources suggest however that Sunbird are going through the process of becoming regulated somewhere, however I have been unable to find any official word on this. While SunbirdFX has pretty good reviews regarding customer service etc, it is deeply worrying that the firm is unregulated as it means it doesn’t have to abide by many important regulations including client fund segregation and otherwise. It means you don’t also have some of the important protections you would have in place if you chose to deposit with a European regulated brokerage. For me personally this is enough not to ever deposit money with an unregulated brokerage as it will always be a very high risk move. 
Overall, though SunbirdFX seems to have a number of points in it’s favor, the crucial fact that it operates unregulated is enough for me to advise people not to deposit their hard earned cash with the bank.

CFD Review: NetoTrade

Important Facts 

  • Regulation: Appears to not be regulated by any particular financial regulatory authority. It has listed a Belize International Business Companies Act registration listed on its website under the name Neto Trade Global Investment Ltd. Belize is a well known offshore entity, this means I believe NetoTrade is a unregulated entity. However there is also a British entity named Neto Trade UK Ltd. which seems to be a subsidiarity of the offshore holding. Such a company structure is slightly dubious. 
  • Instruments: There are 49 different Forex currency pairs on offer at NetoTrade however there appears to be no other instruments available to trade at NetoTrade and I have been unable to find a list of instruments at their site. 
  • Features: Nothing unique or interesting, though traders can open a demo account
  • Leverage: Up to 1:400
  • Minimum Deposit: $100
The Platform 
NetoTrade offers the MetaTrader 4 platform and as you would expect this version of the platform doesn’t really differ from many of the other platforms. It also appears the NetoTrade version of MetaTrade does support Expert Advisors, but there is no information about whether NetoTrade allow you to use scalping expert advising and I’m guessing that the answer is probably no. There is also the option to use the NetoTrade web trader and the NetoTrade mobile trader, which are both perfectly functional even if the not offer brilliant functionality. It looks like the web trader may be powered by the Srix platform but I’m not 100% sure and the mobile platform is written HTML 5 and is similar to a number of other web platforms available at the moment. 
Special Features 
There is nothing remarkable or unique about the NetoTrade offering so this section is going to be very short. 
I was unable to find any listing of spreads fixed or floating, so again it is pretty hard to remark on what kind of Spreads are offered at NetoTrade. Not having spreads listed on your website is very bizarre the majority of brokerages have their spreads listed very clearly allowing you to compare them against other brokerages, however this is not the case at NetoTrade. Seems a bit fishy and odd. I have no intention of placing $100 with them just to discover the spreads on offer. 
Customer Service 

NetoTrade has a UK phone and fax line listed on their website as well as the address of Neto Trade UK Ltd. According to Companies in the UK 726 different companies are registered to 788-790 Finchley Road strongly suggesting that this is merely a forwarding address. This strongly suggests that those running NetoTrade are keen to hide their location, this may be either due to the fact they are not operating in this country or do not want people turning up to there offices. This may be the case considering their website seems to link to two different countries both Neto Trade Global Investment Ltd. of Belize and Neto Trade UK Ltd. There have been a number of different individuals complaining about the services at Neto Trade and some have even accused NetoTrade customer services having been rude to them. Establishing whether these accusations are correct is difficult however, but such accusations are concerning. 

NetoTrade UK Ltd. which appears to be the company which operates NetoTrade appears to be totally unregulated it’s company house registration lists as a company providing, Other Business Support Service Activities. This may mean that NetoTrade UK is just the service company for it’s Belize registered parent company, the problem with this is that CFD’s aren’t financial regulated instruments to the best of my knowledge meaning that NetoTrade is an unregulated entity. NetoTrade’s UK Ltd. only listed director has been a director of 42 different companies with many of these companies appearing to be of a financial nature. While some are in various technology niches including one company which appears to produce adult mobile apps. It could even be the case that this director is just a face for NetoTrade UK and the other companies linked to him, with a company called Centrum Secretaries  being the Secretary of NetoTrade UK which appears to be a company that provides secretary services to a number of different companies. The company structure again is highly nontransparent making it seem quite likely that NetoTrade is an unregulated entity. 
Overall, I would suggest that people are very careful when doing business with NetoTrade and it’s associated companies.  

Binary Review: GOoptions

Important Facts 
  • Powered by the SpotOption platform 
  • Regulatory Authority: Appears to be unregulated unless it is relying on the CySec regulation of the platform provider SpotOption. Massive Consulting Ltd. appears to be registered to a residental address in Birmingham, United Kingdom. 
  • Unique Features: Nothing in particular apart from a sign up bonus
  • Instruments: Offers 200 Instruments including Commodities, Stocks and Currencies 
  • Minimum Deposit: Micro Account $100 
The Platform 
The platform is a typical example of the kind of platform found by those who use the SpotOption platform to operate there binary options business. The platform is reasonably attractive but it is not as attractive as many of the other platforms that also use the SpotOption software. Anyone who is unfamiliar with Binary Options trading will be able to use the platform with very little effort and anyone else who has used another SpotOption platform will probably feel a serious sense of Deja Vu. The platform is perfectly functional and will let anyone with even the most basic understanding of how financial instruments. However I’m not personally a great fan of the color scheme used on Goptions as it appears rather grating to my eyes. There is nothing in particular that sets the Goptions platform apart from the numerous other platforms using the SpotOption software. It also lacks the support of smartphone trading which available on some of the other SpotOption competitors such as OneTwoTrade. While all in all the Goptions platform is perfectly functional and may satisfactory for many traders needs it is hardly going to set the world of Binaries alight. 
Special Features 
What is particular weak with the Goptions offering is the overall lack of special features. A number of educational tools are offered but these aren’t exactly particularly useful and are really not going to provide a trader with anything particularly valuable. They also offer a sign up bonus of up to 100%, however the terms and conditions involved in this particular sign up bonus aren’t made explicitly clear which makes me rather wary of this particular offer. So when it comes to special features for me it appears the Goptions appears quite light on the ground. This may not be a big deal to some people who just want an easy and reliable platform to use.
Option Contract Returns 
As the site is powered by the SpotOption Ltd. software the Options contract returns are pretty much what you would find on many of the other SpotOption websites. This is due to the fact all of the SpotOption powered sites use the same risk management software. However I did feel that some of the option returns on Goptions were slightly poorer than on some of the other SpotOption powered sites. However this is just a hunch and is just based on my personal impression when I looked over some of the binary options sites using the SpotOption software.  
Customer Service 
GOptions seems to pretty reasonable in terms of the customer service provision. There is both the option to phone a US and UK based phone line. Alternatively you can contact the people at GOptions through there 24/7 Live Chat feature which seems work pretty effectively, though it does take a couple of minutes to get through to an operator. Though it doesn’t appear to be particularly 24 hours with the live chat feature only operating between 6am and 10pm GMT which does seem to point to the site being based in the United Kingdom. There is also an email contact form if people would rather contact the site through the form of email which is always an option, especially for those who are less confident when it comes to chatting live to someone they don’t know. However the main negative for is the lack of address listed on the website. A listed address appeals to me as it appears to be attempt at providing some transparency, it is also provides a place to make inquiries if the worst comes to happen. 
It appears that GOptions itself is unregulated. This would certainly be the case if Massive Consulting Ltd. is in fact a British based company. As a British registered company would be unable to either acquire a British Gaming Licence or FSA regulation to provide Binary Options in the format offered by SpotOption. It appears that GOptions is either operating unregulated or that it is assuming that the fact that SpotOption is a regulated entity also means that they are covered by SpotOptions regulation. However whether this is the case is unclear as the change in regulation has only occurred recently. Whether White Label companies are in fact protected by SpotOptions regulation is unclear, whether they in fact are depends on how the white labels operate. If they handle the clients money directly themselves it would appear that they are. However if they simply receive a revenue share from the clients who use their site it would appear that in fact they may be covered by the CySec licence of SpotOption Ltd. 
All in all, I would say the GOptions appears to operate a satisfactory binary options service, though I do not feel that GOptions personally offer the best service around. Whether they are covered from a regulatory point of view also appears somewhat unclear.

Binary Review: SmartDengi

Important Information
  • Regulatory Authority: Unknown- Appears to be unregulated. Though a registered company in Cyprus meaning that the company may have submitted a request for a licence to carry on operating within the Jurisdiction.
  • Instruments: Stocks, Indices, Commodities and Currencies 
  • Unique Features: Support for Russian Speakers, longer term option contracts
  • Minimum Deposit: Undisclosed 
The Platform 
The platform will be instantly familiar to anyone who has traded binary options using a SpotOption platform before and those who haven’t will take no time to get to grips with the platform as it is extremely easy to use. The Platform offers its users a number of different views when trading Binary Options, with my preferred view being called the open view. However the platform doesn’t provided much in the way of technical tools in order to help the trader decide whether he should open up a position. All in the all the platform is pretty reasonable and I like the color scheme that has been used on the SmartDengi website. However there is nothing that sets the SmartDengi platform apart from its rivals and unfortunately it doesn’t offer provision for those who wish to trade on the go from a smartphone which is unfortunate.  
Special Features 
SmartDengi is practically devoid of special speakers unless your first language is Russian (Dengi stands for money in Russian so SmartDengi =SmartMoney). The site is availiable in both in English and Russian and provides assistance in Russian language for those who want it. There appears to be no special sign up or deposit deals and not much special in the way of training or new trader support. Also rather disappointingly it appears that SmartDengi doesn’t offer the option of allowing those interested in their service to open a training account allowing the customer to see if the service is right for them. 
Option Contract Returns 
The Option Contract returns found on SmartDengi are typical of the returns offered on the SpotOption platforms which all use the same risk management software. This leads to many of the sites to offer very similar returns depending on what action their customers have entered into. However what is interesting about SmartDengi is that I have seen a number of longer term options offered on the site with returns up to 530%, however the expiry date of these options was long way off and the chance of the Option coming good was also extremely low. But this could be off interest to those who want to a longer stance on Options than typically available. 
Customer Service 
The Customer service experience on SmartDengi doesn’t appear to be that great. A telephone number is offered for those who wish to speak to SmartDengi in Russian, however it appears that there is no English language telephone number for customers to contact. They instead have to contact the company using an online customer complaints form, which is far from ideal. One other thing that makes me nervy about SmartDengi is that the company has not listed its address on its website which makes me very wary about using the company. Putting up the companies address presents a commitment to transparency to me which is something important too me at least. 
It appears that SmartDengi operates unregulated at least at the time of writing. Recent regulatory changes in Cyprus will require that ChargeXP investments apply for licence if they wish to continue operating from the said jurisdiction. Generally if a site is regulated they tend to make a song and dance about the said issue. However many seem to feel the new regulations do not apply to them due to the fact that they operate essentially a white label using the SpotOption platform (SpotOption hold a CySec licence), which seems at least somewhat dubious to me. Though if operating a sole white label of SpotOption and not handling any financial transactions the need for regulation for the entity itself is less apparent. Until we see the new regulations fully come into play it will be hard to see whether SpotOption platforms do in fact need to garner there own independent regulation.  
Overall, SmartDengi may not be in fact the place where the Smart money is. While it doesn’t appear to be a bad example of a platform provided SpotOption there are other sites I would prefer to use which also run using the SpotOption platform. However this being said the site might be attractive to Russian speaking customers.

How do Market Makers make money?

For those who don’t already know a Market Maker is a CFD brokership model where the brokerage takes the positions of those trading with them onto there own books, not necessarily placing a trade in the physical market for that particular instrument. It is often asked how a brokerage can make money from such a business model especially if they have a number of successful customers on their books. However a Market Maker has a number of different ways in which they can alleviate and control their internal risk. 

Firstly, a lot of the time a broker can offset different client positions against one another meaning that they profit the spread as commission. 

Client # Instrument Buy/Sell Lot Size
1 EUR/USD Buy 1 Lot
2 EUR/USD Sell 1 Lot

Suppose that there are two different clients who both simultaneously open positions in the EUR/USD. One Buys a Lot while the other sells a Lot, meaning that until one of the traders closes their position the brokerage is not exposed to any risk. As any profit made by Client #1 will be offset by the same loss in Client #2’s account, this remains true until the 2nd Client closes his position leaving the brokerage exposed to any continuing profits that the first client’s position makes. This may not be a major problem as by now a third client may have opened a position selling the EUR/USD therefore again covering the brokerage from any risk. 

The problem for Market Makers comes when there is a huge number taking on positions in one direction. But again there are still ways in which a Market Maker can deal with such risk, as explained in the following example.  

Client # Instrument Buy/Sell Lot Size
1 EUR/USD Buy 2 Lots
2 EUR/USD Buy 2 Lots
3 EUR/USD Buy 2 Lots
4 EUR/USD Buy 1 Lot
5 EUR/USD Sell 1 Lot

In the above example you can see that clients have opened 7 Buy Lots, while one other client has opened one Sell Lot. This means that the Market Maker is exposed to 6 Lots of risk, which presents them with a significant risk. Supposing these positions look like there going to be profitable due to some or other breaking news, the broker could either take the losses providing they had the required funds. Alternatively the brokerage could open positions in the underlying physical instrument to mirror that of its clients reducing its risk to zero, while there would be some costs in this by going into the markets with a physical brokerage the broker would get a much a lower spread than the broker offers to it’s clients. This allows them to make some limited profits. This is also the reason that brokerages widen their spreads during high volatility periods, the bigger the spread the more profit that can be potentially made. 

There are other more complicated ways that Market Makers can do to manage their risk. Due to the fact that they can see the Open Profit & Loss balances, they can offset profits being made by some traders against the losses being made by others. Normally this isn’t particularly problematic due to the fact that it is estimated that around 80-85% of retail Forex traders lose money. Meaning that a lot of the time the Market Maker doesn’t really need to be to concerned about risk management, often only having to take an active interest in risk management when large positions are taken out in one particular direction. Meaning that being a Market Maker can be a very profitable.

CFD Review: YouTradeFX

Important Facts 
  • Regulation: youtradeFX is the trading name of Youtrade Capital Markets Limited. who are authorized and regulated by the FSA of the United Kingdom. Though youtradeFX has somewhat of shady past with many alleging that they were an unregulated Israeli based entity. 
  • Features: Demo Accounts and a various educational tools.
  • Instruments: Forex, Commodities and limited Stocks. 
  • Leverage: Up to 300:1 on Forex Instruments, Up to 50:1 on other instruments 
  • Minimum Deposit: $100  
The Platform 
YoutradeFX offers a variety of different ways to trade the financial markets offering both the MetaTrader 4 & 5 platform. Both these platforms are very popular with traders and youtradeFX claim that there is no slippage on their platform. It’s not made clear what support if any they offer for those using Expert Advisors with their platform and whether they allowing scalping etc. They also offer a web trader application based on the Srix software which is perfectly functional allowing traders to open and close positions as well as undertaking basic charting etc. They also offer the MetaTrader mobile program and another web mobile trading platform providing plenty of provision for those who want to trade on the move, which will definitely be of interest to some people. They also have the widely available social trading platform mirror trader again which will be of interest to those who engage in social trading. Though it should be noted that those who want to social trade would be better of using a platform such as ZuluTrade or eToro. YouTradeFX is one of the 65 different brokerages that offer ZuluTrade support so it’s possible to use ZuluTrade in conjunction with YouTradeFX.  
Special Features 
There is nothing particularly unique about the offering from YouTradeFX with their offering seeming to be particularly unremarkable. It should be mention that YouTradeFX does remark that they offer the best one to one coaching around, but as I have never been on the receiving end of this coaching I cant comment on how good or valuable it is. Many brokerages seem to be offering new clients one to one coaching and I can see why many brokers offer such a service. As a final note it should pointed out that YouTradeFX also offers demo accounts. 
The Spreads on offer at YouTradeFX aren’t particularly tight with only two major pairings being tight as 3 pips. You would be able to find much tighter currency spreads at a number of other regulated brokerages. The situation isn’t much better when it comes to commodity and stock CFD’s with some of the spreads being pretty wide even on some of the more popular instruments. I’m pretty certain that one could find a provider who offers a better overall range of spreads. This seems to be a good enough reason to avoid trading at YouTradeFX as getting a good deal on spreads can make a huge difference in terms of profits and losses.  
Customer Service 
YouTradeFX has a particularly bad reputation when it comes to customer service, with many saying that withdrawals can take upwards of two weeks. With YouTradeFX allegedly ignoring these customers and not getting back to customers after they have complained about not receiving their withdrawals. There have also been accusations that representatives from YouTradeFX have been giving glowingly positive reviews to their website at a number of Forex websites. It will be interesting to see if anyone leaves suspicious reviews here. Though YouTradeFX claims they offer great customer service their seems to be plenty of testimonials which paint a very different picture. 
YouTradeFX parent company YouTrade Capital Markets Ltd. was founded in 2011 and became FSA regulated in 2012, but before hand was believed to be operating from Israel completely unregulated. After a little digging I found that 3 out of the 4 directors of YouTrade Capital Markets Ltd. have very Jewish names suggesting at least some possible connection with Israel. Another thing that suggests that this company has foreign origins is that again 3 out of the 4 directors have YouTrade Capital Markets Ltd. business address also listed as their home address suggesting that these particular directors are based outside of the UK. Either that or they live in the offices of YouTrade Capital Markets which is highly unlikely. All this being said YouTradeFX has a clean regulatory slate with no disciplinary action ever being undertaken against them by the FSA. Though to be fair the company has only been regulated since April 2012 and Regulatory bodies can take a long to react and undertaken investigations. 
Overall, I would personally avoid dealing with YouTradeFX.


Important Facts 
  • Regulation: FXCM (Forex Capital Markets) UK are regulated by the FSA, the financial regulator for the United Kingdom 
  • Instruments: Forex, US Dollar Index, Stock Indices and Commodities 
  • Features: Full Support for scalping EA’s, no re-quotes and decent range of platforms 
  • Leverage: Up to 100:1 
  • Minimum Deposit: $0, different minimum balances required for different trading instruments.  
The Platform 
FXCM offers a number of different platforms for those wishing to trade Contract’s for difference with them. There is both a download and web based platform which are both functional and pretty basic. While there available I’m guessing that the more serious traders will want to be using the MetaTrader 4 platform that FXCM offer alongside these web and download platforms. The FXCM MetaTrader 4 platform is pretty much what you would expect from the MetaTrader platform. Though the FXCM MetaTrader has a number of benefits including allowing EA’s and not preventing the user from setting a very close minimum stop. They also offer a mobile based trading platform which supports both Android and iOS phones and tablets, which is really a requirement as mobile trading is one of the areas which is experiencing the greatest growth. They also offer support for NinjaTrader and MirrorTrader which are both automated trading platforms, many will have already heard of MirrorTrader which is available at a number of different providers. More interesting is NinjaTrader which is a serious bit of kit which allows you to create complicated algorithmic trading systems in C#. This is a nice bit of kit for the serious algo and automated trader. 
Special Features 
One of the best features about FXCM UK is that they have a no re-quotes policy which will please many a trader who has struggled with brokers frequently re-quoting them whenever they try and open a new position. The other thing that is undoubtedly great about FXCM is that they accept whatever Expert Advisor you want to use and don’t restrict your Expert Advisors operating any way you want. These two things aren’t anything particularly gimmicky or new but show a willingness from FXCM to provide the kind of service that traders really desire.  
The Spreads on offer at FXCM are very competitive though they aren’t quite as competitive as some of the very best providers out there such as CMC or GFT, but they still offer spreads below 2 pips on many major instruments. The spreads are even better when you have over $25,000 in their account and the spreads for these customers are indeed very competitive.though most traders won’t have this kind of cash in there accounts. Obviously the more exotic the instrument gets the less competitive spreads at FXCM get, but would have to put FXCM up there when it comes to spreads with many other brokers offering much wider spreads than FXCM. 
Customer Service 
FXCM generally has a pretty good reputation when it comes to customer service and does seem to provide a pretty decent customer services offering. FXCM is best known as Americas leading margin Forex brokerage and offer 24/7 Live Chat which is meant to be very helpful to its customers. FXCM also seem to have one the widest range of free telephone numbers I have ever seen including a number of lines for a number South American countries. They also allow you to open positions over the phone provided your not a MT4 customer who can only close positions over the phone. Though phone trading is a bit old wave it’s vital if you need to close a position and you can’t get online.

FXCM UK is regulated in the United Kingdom by the FSA and has a clean regulatory record as far as I can tell which is always a plus. It should also be noted that the FSA is considered one of Europe’s better regulatory bodies when it comes to the regulation of retail trading brokerages. FXCM is a large international brokerage company and is regulated in multiple authorities and in 2011 it has ran into trouble in the US where it was fined $2 million for slippage malpractices and also had to credit its traders back. Though since this incident there has been no further problems in regards to FXCM. 

Overall, I would trust FXCM with my personal cash and seem to provide their customers with a decent level of service. 

Spread Betting and Leverage

Spread Betting allows you to be involved in financial trading with a much smaller outlay than with other forms of financial trading including traditional share trading. This is because financial spread bets are a leveraged instrument. Financial Spread betters don’t buy the underlying asset they are speculating on, instead they speculate on the movement of the asset price. The movements in price positive or negative in percentage terms can be considerably larger than that of the initial stake. Spread bets are meant to be the instrument that provide traders with the most bang for their buck, with leverage allowing individuals to make a big profits or losses with only a modest initial outlay. 

Anyone who is currently speculating with spread betting is most probably quite significantly leveraged. Leverage involves either using borrowed money or using derivative instruments such as CFD’s or financial spread bets. These means that many Spread betting transactions require only a modest outlay in order to gain exposure to a much larger sum. A Spread bet that gave you £10,000 worth of exposure but only required an initial margin of £1,000 would make you levered 1:10. The extra £9,000 is being effectively lent to you by the Spread betting company and this is typically why you are charged on an overnight ‘rolling’ charge to keep the position open into the next day of trading. This interest is typically charged in accordance with some base rate, most typically the LIBOR. 

Your are still exposed to £10,000 worth of risk. However if the price of the instrument moves in your favor you will never need to deposit the additional £9,000. However, if things happen to move against you’ll have to provide the additional funds as needed or close the position. This is called a margin call. Making leverage a double edge sword helping you when things go in your favor and hurting you when they go against you. Using Spread Bets or CFD’s you will have at least 10 times exposure to price movements (some regulated CFD brokerages leverage up to 1:888).  Assuming ten times leverage and a buy order, if the price rises 10% the trader would have doubled his original capital, however if the price had fallen by 10% he would have wiped out and received a margin call. 

Imagine a situation where you had £500 deposited in your Spread betting account. And you were about to put down a £5 per point bet on a company whose shares where valued at 100p a share, if you were levered 1:10 then a 10% fall in that particular companies share price would wipe your account out. This demonstrates the importance of using leverage carefully, if you had only £500 in you account it would be much better to have only placed a £1 bet which would have only lost you £100 if the companies share price had fallen by 10%.  

The ultimate cost of higher leverage is higher potential losses, but it does come with the possibility of higher returns which is one reason so many people are attracted to trading leveraged financial products. Traditional investors who undertakes margin Share trading can expect to make huge profits during bull periods as the leverage would massively multiply his profits, but in bad years he would either have to accept huge losses or escape the markets. However the spread bettor has the option to trade both bull and bear periods due to the fact it’s easy to trade both long and short. While a margin stocks trader does have the option to short sell it is generally more costly as it involves borrowing stock often at quite a high rate of interest. 

Leverage can quickly wipe out your deposits, and this is why you should probably lean on the side of caution when its comes to how much leverage you expose yourself too. If you have only a £1000 in your account you probably want to limit the size of your spread bets to a couple of pounds. There are a number of different tools which can help you deal with the looming specter of highly levered losses. Both stop losses and guaranteed losses can help you set limits to your losses. But leveraged trading doesn’t necessarily need to be more risky if traders take the required precautionary measures. Leverage means that with a small additional deposit huge profits can be made for example, it may be possible to make a £1,000 profit from only having deposited £500 provided you have the required leverage and the position goes in your favor. Because of this there have been rare cases where people have been able to grow a £1,000 deposit into a million within the space of a couple of months. 

Leverage and risk shouldn’t be too much of a problem, as long as you keep the bets small as a total percentage of your capital. Implementing guaranteed stops and stop losses will also help you control the risks associated with high degrees of leverage. The real problem many will have with leverage is psychological there is always the temptation to ramp up the leverage in the hopes of making your losses back which can put your account on a real tilt and lead to even greater losses. Which is why setting trading limits is a very important aspect of trading and is something that everyone should do.