What the broker would not tell you

The vast majority of the free training courses for traders are sponsored by brokerages. They usually teach participants how to use a couple of indicators (information that is readily available for free on the internet) and try everything they can to make the trading process look as easy and exciting as possible. The coaches at these seminars are usually professionals who have been specially trained to create an atmosphere of success – so that on the way home you will be full of exciting thoughts about how much money you are going to make in the near future.  The main goal of such seminars, as you have undoubtedly guessed, is to gain you as a client.

Now let’s look at what they don’t tell you.

The broker is the only participant in the market who makes money under all circumstances, whether prices go up or down. He makes his money on the spread; the difference between the bid and the ask prices. A broker who takes no positions in the market, and who merely places clients’ orders, takes his profit regardless of whether you gained or lost. The only variable in this case is how much money the broker is going to make, which depends solely on the size of the clients’ orders. 

By offering new clients a 1:200 margin ratio and by allowing brokerage accounts to be opened with as little as $500, the broker sets up the newbie trader for failure from the very beginning. The allure is this:

“By buying $100 000 worth of JPY (that’s exactly how much buying power you have with a $500 deposit and a 1:200 margin) at 80 and selling them back 80.5 will make you $620 on one trade.”

What they conveniently forget to tell you is that such a trade implies risking 100% of your capital on a single trade! Teaching you how to control risk and to properly calculate your position size clearly does not serve the broker’s interests, because… the more you stake the more the broker makes. This is one of the main reasons why 95% of the traders fail; they lose everything in the race for easy profits because they don’t understand the basics of money management.