How Brokers Used to Screw Us

A Story from the Early Days of Online Trading

The Right Broker

When I started trading, online execution was only just getting started. In fact, I remember reading a guide emailed to me by my new broker explaining how to correctly ask for a quote and make a trade via the phone.

“There are a few simple things to remember when you ring up to deal. First of all, there is a distinction between asking for an actual dealing quote and just asking for information about where a particular market is trading. If you just want to know a current market level and do not intend to deal you should use the word indication. This will save a lot of time.”

“If you do want a dealing quotation, you should specify clearly the market and the delivery month in which you are interested. For your own protection, do not tell the dealer whether you want to buy or sell until after he has quoted you a price. Do not ask for more than one dealing quote at a time. When the dealer has quoted you a price, you must decide quickly whether you want to deal. If you wait more than a second or two, our quotation is likely to change, particularly if the market is active.”

At the time the FTSE 100 was trading at 4,000 and the spread was 6pts! Wild. Imagine trying to trade that…

Retail trading was a new thing in the UK, previously reserved for the city boys now brokers realised the public had a thirst for short-term speculation and a technology race began. All of a sudden brokers could take deals online without the need for trained staff and new brokers began sprouting up everywhere, wanting a slice of this action.

Some of these brokers were good, some were let’s just say ‘not so good’. The not-so-good ones hated profitable traders. They weren’t good for business at all. The good ones didn’t care, they had enough deal flow to be totally hedged and make money from the spread, commissions and carrying charges.

But the ‘not so good’ brokers would play all sorts of games. They would send online orders to a dealer, the ticket would sit there and a dealer would manually review the order. Cancelling the trade if the market went for you, and filling the trade if it went against you.

Often phones would not be answered.

Fast market trapping clients?
Don’t expect the platform to be online or the phones to be answered.

Got filled at a great price in the overnight session?
Don’t bank on that trade not getting cancelled the next morning.

The list goes on…

It made me very cautious about picking the right broker and even other unintentional outages. Exchange, broker, power, or data. Still to this day, I like to be prepared.

Today, think about making sure you have a redundancy plan in place. Especially if you are a day trader.

  • Do you have your broker‘s number in your phone and your account number to hand?
  • Do you have a backup broker? If one goes down and you need to exit a trade, you can always hedge via another broker.
  • Do you have the ability to tether your phone to your PC if you lose internet?
  • What’s your fallback if you lose power?

I’ll admit this stuff may seem overkill these days, but a bit of prep now could save you a fortune! (I’ve had almost every single crazy thing happen to me)

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If you’re looking for an additional or replacement broker I suggest you see if Pepperstone match your requirements.

I’ve been working with these guys for a while now. I’ve met a lot of the team in person and in the last few months seen them win several best broker awards. So they are well worth sticking on the shortlist.

(One downside is they don’t offer some smaller cap stocks to trade via CFD or Spread Bet.)