While gathering data to include in the alerts today, we were assaulted by a number of popup and banner advertisements (the ad blocker must have been on the fritz). A few in particular stood out.
“Free market signals” – Don’t get us started on free signals.
“Copy trade alerts” – So now we’re just copying just to copy? No matter the quality?
“Verified indicators” – Verified by who? What?
“87% more Winning Trades” – The inclusion of the word “more” is very important because an 87% increase on 1% of profitable trades is still only 1.87%. Guh. (*Please see the very bottom of the post)
As offensive as these ads are… and they are offensive, the scariest part is not the content, but the author. Brokerage firms.
Last time we checked, no broker we have ever met has any experience managing money, placing trades, generating a profit or otherwise modeling the market to produce a return. And there’s a very simple reason for that.
Brokers are service providers. They get paid when you press the button simply because they have provided you with that button to press. It’s a trade. You pay a commission every time you buy or sell and they provide the platform on which you buy or sell. Simple. End of relationship. Everyone is happy.
So… why are these brokerage firm ads littered with talk of “Free Signals” and “Advanced Analysis” and “Trading Strategies?” Why is a brokerage firm with no experience managing money, or producing a profit, supplying traders with tools marketed as the solution to profitable trading? Why have they crossed that line from simple service provider to supplier of content?
… Because these tools get you to trade more often. And that’s when brokers get paid.
There are 3 types of brokers:
1. A regulated broker operating as a service provider.
These firms stay in their lane. They supply a service (platform). They get paid for that service (trading commissions) and you go about your trading pressing buttons and all that. Everyone is happy.
These kinds of firms also produce ad copy but the content is not designed to encourage trading but to highlight the service. They say things like:
“Trade Stocks, Options and Futures with an Award-Winning Brokerage”
“Trade global index markets 24 hours a day”
Yes, we actually went searching for ads. It’s noticeable that these ads highlight the services being offered… access to the markets via a platform with buttons and such. What’s not in these ads are encouragements to trade more often or the offer of advice or the opportunity to win more often.
2. A regulated broker operating as an advisor.
This second type of broker provides the same material… but loads it up with all tons of nonsense designed to get you to trade more often. “Free indicators” this… and “Expert Advisors” that… Over and over and over again you’re assaulted with tools you don’t need, have no idea how to use and will never generate a profit by following.
Why? Because these tools get you to trade more often and that’s how they make money. These firms are less “broker platform” and more “trading salesman.” Please… please… please never take trading advice from a broker or from any tool that a broker pushes on you. The material is designed to get you to trade more often, not more profitably.
The last thing all of these firms have in common is an absolutely offensive amount of leverage up for offer. We have not written about leverage in the past but it should be a topic we reference soon… because it’s important. In short though, leverage is a tool like any other. When abused, it only hurts you. Brokerages that offer 500:1 or 200:1 leverage are treating you like a fool and they’re supplying you with that leverage simply because it gets to you to trade more often (high leverage, tight stops, stopped out, go again. CHA-CHING!!… trading commissions over and over and over again.)
3. The unregulated broker.
The third one… The unregulated broker… well, this one’s going to have to wait for next week. We have far too much to say about this group and it’s going to get heated.
On a weekly basis, we are asked for a list of good brokers or for platforms on which to trade. Our answer is always the same. Use a regulated broker with a platform that does not push trading ideas on you. There are dozens of these firms available and all of them have access to all of the markets you want to trade. We don’t name names simply because firms that do are being paid by those brokers based on your trading activity.. but just look around. There are plenty of good firms available.
*The inclusion of the word “more” reminds us of an ad posted in a ski resort here in Switzerland. It says “Carlsberg… Probably the best after-ski in the world.” You know some lawyer somewhere looked at the original ad copy and said, “How about we include the word Probably in the middle.”