Independent Broker Platform Review

Today or tomorrow you’ll find that your broker will require 10 times more margin for your trades.

All of a sudden, a £10 bet in the FTSE requires £3,800 instead of £380 in margin.

It is not over though. You have the freedom to select a broker anywhere in the world you want. I have begun reviewing brokers around the globe.

Today I will present a broker from a legal jurisdiction that I consider safe and secure. It is regulated by ASIC, and Australia has an Ombudsman scheme. They offer 200:1 margin and also a bonus scheme.

Fact Sheet

Broker: TD365 – TradeDirect 365

Website: https://tradedirect365.com.au/

Country: Australia

Licence: ASIC

I have done a thorough review of the TD365 platform, but let me sum up the advantages and the disadvantages first.

Advantages of TD365

200:1 margin on indices and currencies and commodities – Welcome Bonus of 25% ( this means you get a 25% discount on the spread for the first month) – ASIC regulated – Cloud Platform and MT4 –FIXED spreads – Dow/DAX/FTSE 1-point spread – Easy platform to use – instant fills – no requotes.

Disadvantages of TD365

Platform a bit “5 years ago”, chart package is ok, but not great, it’s not spread betting but CFDs.

Review of TD365

I use various trading platforms in Europe but considering that ESMA as of the 1st August 2018 has reduced the amount of margin available to traders in the EU, there is a need for an awareness of what brokers outside of the EU have to offer.

These brokers are not allowed to advertise in Europe, unless they are regulated in Europe, but it’s a catch 22, because if they are regulated in Europe, they can’t offer the high margins.

TD365 is an Australian broker based in Sydney. They are regulated by ASIC, and they have received complimentary reviews by Australian traders.

They are a CFD broker, so for those of you who are you used to spread betting, it will take a little bit of a transition to convert to CFD trading.

Website

You can’t tell much about a broker by looking at their website. TD365 does have a chat function for anyone who wants to ask them questions. Otherwise, lets move on and look under the bonnet of the company.

Trading Platform

The platform is basic but very functional. It is a copy of the platform of Core Spreads and Finsa Markets in London.

The trading tickets are large and visible, which I quite like. You can have as many tickets open as you want.

Other good features are:

  • 1-click trading or 2-click trading
  • Stop-loss distance as little as 2 points
  • You can click a button to create a “HEDGE” trade

The One-Click Trading

The 1-click trading is very neat. You simply click “on” or “off”. I use it in “off” mode unless I am scalping.

You can also program your preferred trading size, so every time you launch a trading ticket, your normal size is displayed. I really like that feature. You simply type your preferred size in the box and click “save”. Job done.

The “Always Hedge” is a feature I don’t use. It means you simply open a trade in the opposing direction to the one you have open. I don’t see the point in that. It just means that I will have more trades to close eventually, unless I want to pay a lot of overnight charges.

The Enhanced Trading Ticket

The Enhanced Trading Ticket is a bit big and clumsy, but the flipside is that you can have very tight stop losses. Many brokers will have a minimum stop loss in say DAX or FTSE index at least 6 points but TD365 has a minimum of just 3 points.

The Alarm Ticket

The Alarm ticket is very easy to use. You simply input Buy or Sell and you input your alarm level. The disadvantage is that it gets sent as an email. There may be a function to send it to your mobile phone as an SMS, but I haven’t seen it.

The Charting Package

I think the weak link of the TD365 is their charting package. I actually think this is an unfair criticism, but I understand WHY people are saying it. The functions are clumsily laid out, and you probably have to invest a good 30 minutes to get to grip with all the features.

The charts have EVERYTHING you need, including trading from the chart. It is just that the layout of the charts which is not overly user-friendly. Other brokers such as ETX Capital have a much easier charting package to use.

The Mobile App

Another little quirk of TD365 is that if you search for their App on the App store, you won’t find it. You have to use the name of the App, which is CloudTrade (all one word). I don’t think that is very smart, but at least I called them and figured out how it worked.

Overall Impression

There are plenty of brokers in Australia, but most of them are MT4 brokers. I don’t approve of MT4, so if you are an MT4 trader, this review may not mean a whole lot to you.

TD365 is a stable platform, albeit a bit dated in look and feel. The trading tickets are visible and easy to use but the best part is the instant execution. I trade bigger size than the average trader and I get my fills instantly. I can scalp, if I want to. By scalping I mean in and out in seconds.

I use their charts, and I have no problems with them. Yes, I don’t make fancy drawings on them either. I know they have hundreds of indicators and Fibonacci and Gann and so forth, but I really do not care for that.

The conclusion is that I see past the somewhat dated trading platform and the not so user-friendly but very comprehensive charting package, and I relish the tight fixed spreads in all their offerings and the 1-point spread in Dow/DAX and FTSE.

Are Brokers creating a dangerous situation with the new “Pro” status?

Are brokers creating a dangerous situation with the new “Pro” status?

Today I called the FCA. I wanted to hear with my own ears what the watchdog of the financial service industry in the United Kingdom had to say about brokers, which are converting their clients from “retail traders” to “professional traders”.

You can’t have missed these communications from your broker. ‘Our brokers are keen to get you to consider becoming a “professional trader” because it means you can maintain trading with 200:1 margin, rather than the boring 20:1 margin.’

Why is the broker so keen on that? Otherwise, he will lose revenue as your trading size will be significantly lower. It makes sense for all parties to seek to maintain the higher margin. As I pointed out in another article a few days ago (New ESMA Rules & Brokers Outside EU), there is not much fun trading a pound a point, if you are used to trading 10 pounds a point.

Not easy to become pro

Of course, it is not so easy to achieve the “pro” status. You need a sizable chunk of money, as well as being able to demonstrate that you have some trading experience.

I decided to speak to the highest power, so I placed a call with the FCA, and I asked the following question:

“If a retail client is converted to “professional status”, is he or she still protected by the FSCS?”

Before I tell you their reply, let me enlighten you about retail traders and the FSCS.

FSCS stands for the Financial Services Compensation Scheme. It is a scheme that protects the ordinary man in the street against unexpected financial disasters, such as your bank or broker or insurance company going belly up.

Say you have £5,000 in a trading account with a CFD broker, and the company goes under – for whatever reason – you are going to be compensated for your monetary loss by the FSCS.

Sounds good, right?

You have other rights too when you are a “retail trader”. You can complain to an Ombudsman, for example, if you have a dispute with your broker, and generally, you will be favoured rather than the broker, should a dispute arise.

The professional trader though is not so lucky. He is unable to complain. I imagine many people are less worried about the ability to complain and are more concerned about whether their account balances are protected by the FSCS.

So, I asked the FCA, and they said: “Professional investors are likely to lose their ability to claim compensation with the FSCS, but you should really contact the FSCS directly.”

I hung up, thinking that was a vague answer from an institution that is meant to safeguard the public against malpractice of financial firms. What does “likely” mean. Will they or won’t they lose their account protection?

So, I called the FSCS. I can’t begin to tell you how utterly unprofessional that conversation was. I might as well have been trying to explain basic calculus to a new-born. “How do you spell CFD’s?” the lady asked me. She told me to email the FSCS legal team with my question, which I have. I am still awaiting their reply.

As I was sitting trading anyway, and I had little else to do, I went online to a couple of brokers, who have these neat online chat facilities, where you can ask questions.

Asking the brokers

I spoke to Activ Trades, and asked them this question:

“I have a question regarding the new ESMA rules. If I become a pro client, am I still protected under the FSCS?”

The answer was so laconic and so quick, I was startled. “Yes”. That was it.

I pressed a little harder. Here is the transcript of the conversation:

ME: are you sure? The FCA says no, but they referred me to FSCS

Activ Trades: As a professional client you receive the same protection as an individual client

So ACTIV TRADES says I receive the same protection as a retail client. That is simply not what I hear elsewhere. A “pro” client will not have the risk warnings. A pro client will not have the new ESMA rule of Negative Balance Protection. I guess Active Trades were not told that, or maybe they misunderstood my question.

I didn’t think one broker should be the basis of my investigation, so I contacted the grandfather of the CFD industry: IG MARKETS.

I spoke to the IG customer service team, posing as a new client. I asked them the same question I had asked Activ Trades, and I was put on hold.

The voice came back and said that the credit team had advised him that nothing would change. I would still be protected even if I was a “pro”.

I explained what the FCA had said, and I asked to be put through to the credit team. The credit team explained a slightly different story.

The credit team of IG explained to me that the main difference between a “retail trader” and a “pro trader” is that the retail traders trading account deposit is placed in a “segregated” bank account. This means that a company like IG cannot use the client’s funds for business purposes. Your cash just has to sit there, ring-fenced.

For the “pro” trader, however, it is an entirely different proposition. His account is not segregated. His funds are used as collateral with prime brokers and to facilitate the general cash flow of the business.

The guy explained to me that some clients are professionals but still have segregated accounts, while other professionals do not have segregated accounts. The difference was often that the non-segregated accounts were big individual stock traders. Their funds were often used as collateral with the prime brokers.

BUT HERE IS THE REAL KICKER OF MY CONVERSATION WITH IG: IG does not have a LEGAL obligation to segregate the funds of professional traders. The credit team went to great lengths in explaining that as a matter of good business practice, they would segregate the accounts of “pro” traders, but they were not legally obliged to do so.

So, I asked them a simple question: so, IF you as a company were forced for liquidity or cash-flow reasons to use the account deposits of the professional traders, you could do so legally?

I never really got a yes or a no. I think he knew where this was heading. He might as well have said, “hey, while all is well, your funds are safe with us, but if the shit ever hit the fan, we can legally do whatever we want, and there is nothing you can do about it”.

He went on to explain that professionals also lose the Negative Balance Protection, something that Activ Trades told me was entirely the same. As I said, maybe Activ Trades just misunderstood my question.

Talking of Activ Trade, they have written on their website, that as a professional client you will normally be eligible to make a claim against the FSCS,…..as long as your account with them is not your main trade or business.

Can you hear how contradicting this sounds? You are a “professional”, but it is not your main occupation. If someone said to you “I am a professional dentist, but it is not my main occupation. I am a car salesman”, would you not shake your head?

Anyway, moving on to ETX Capital, where I spoke to a really cool compliance lady who was not in the mood for platitudes and vague answers. Thank you ETX.

She said: “No, you are not protected. When you opt for the professional classification, you basically hand over the funds to the company, and if the company goes bust, you become a creditor, and you have no FSCS protection.

Short and sweet – and to the point. You become a creditor if you are a “pro”, and your brokers become insolvent. There is no dear mamma FSCS for you, according to ETX Capital. Their story is very different from IG’s story and Activ Trades story.

The final phone call of the day was placed to Core Spreads. At this point my Dow position was moving, so I began to lose my enthusiasm for this self-appointed fact-finding crusade I had started, and was more interested in Donald’s comments about the EU.

Core Spreads is a small but very ambitious brokerage company, run by a bunch of competent and thoroughly nice people. They went to great lengths to explain to me what was up and down of this whole business of “pro” and “retail”.

Look at their Terms and Conditions, because you will find their wording in all the other companies wordings too, and it just proves one thing: IF SHIT HAPPENS, and we get another “2015 Swiss Bank 20% move” or another “Flash Crash” or some other event that wrong-foots a bunch of traders and brokers in a bad enough way, you haven’t the slightest chance of recovering your funds.

Here is the legal wording, you need to know:

11.5 If you have been classified as a Professional Client or an Eligible Counterparty by us, we may agree, in accordance with the Applicable Rules and Regulations, that money we hold on your behalf may not be treated as client money, and your money will not be held in accordance with the Client Money Rules. We will acquire full ownership of any sums which are not treated as client money for the purpose of securing or covering your present, future, actual, contingent or prospective obligations. Such sums may not be segregated from money held in our own account and may be used by us for the purposes of our business. You will rank as a general creditor of our firm only in respect of this money in the unlikely event of our insolvency.

That is a lot of “may”.

I also contacted CMC, SPREADEX and Plus 500. I am aware of the length of my post, but you have let me entertain you with the responses I received from these companies:

CMC: “No, if you become Pro, you are not protected, but if it is something you want, we can look into it for you.”

SpreadEx: “No protection” – end of story.

Plus 500 was clearly uncomfortable with my questions. I was told after a good online chat that “Your query will undergo a thorough review by the responsible department, to give you a more accurate answer. I am forwarding it now, and you will be contacted through an e-mail shortly.” This was after the operator told me that the FOS and the FSCS were the same.

Here is my concern and I am not the only one sharing this concern, I can assure you of that:

1/ Clients are being converted to “pro”, and I doubt they understand the implications.

2/ FCA and ESMA will investigate it, and as if this industry wasn’t in a dire strait before, we will be if clients have been converted to professionals using wrong assumptions.

3/ How long do you think it will be before some of these new “pro” clients lose their funds, and they claim they were mis-sold and they didn’t know what they signed up to. As a friend of mine said: This is a PPI disaster in the making.

If you have any comments or questions, email me on tom@tomhougaard.dk

Good luck

Tom Hougaard

New ESMA Rules & Brokers Outside EU

A guide to the new ESMA rules and what your options are.

On the 1st August 2018, trading for the retail trader will change dramatically. On this date the new ESMA rules will come into force.

There are 4 significant issues you should know:

  1. Leverage for MAJOR stock indices will be reduced to 20:1.
  2. Leverage for MAJOR currency pairs will be reduced to 30:1.
  3. New margin close-out rules will come into effect.
  4. All accounts will be protected against negative balances.

How bad will it be?

How bad will the leverage restriction be? It will be something that everyone will notice. Take for example a typical bet in the German Dax index at say £10 a point.

OLD RULES: Margin for £10 DAX trade = £650

NEW RULES: Margin for £10 DAX trade = £6,500

From £650 to £6,500 will be felt by everyone. Most traders will have to severely reduce their trading size, maybe to the point where trading becomes meaningless. A typical account deposit for a client is about £1,500. That would entitle you to trade about £2 a point.

Are there alternatives?

Are there alternatives available? Yes. There are 3 alternatives.

  1. Apply to change your “trader status” to professional trader.
  2. Deposit more money on your trading account.
  3. Find a reliable broker outside of the EU so you can continue to enjoy 200:1 margin on forex and stock indices and commodities.

Apply for professional status

You can apply to your broker to change your status from “retail trader” to “professional trader”. If the broker can help you, they will. It will be in their interest too. If your status is changed to professional, then you don’t have to worry about the margin restrictions anymore.

However, it might not be so easy to get approved to “professional” status by your broker. You will need to satisfy at least 2 out of the following 3 criteria:

  1. You need to have placed 10 trades in each quarter in the last 4 quarters, in “significant” size. I have spoken to 2 CEO’s of prominent spread betting companies, and they are still wondering what is meant by “significant”.Please do not worry about it. If you are a regular trader, you will be fine.
  2. You need to have €500,000 in liquid assets.
  3. You need to have worked in the trading industry for at least 12 months and be familiar with trading of CFDs.

You can probably easily fulfil point number 1. You probably already have traded more than 10 times in the last 3 months.

However, do you have €500,000 lying around – which is about £440,000? The average savings in England is £26,000 per person. Not many have €500k lying around.

Have you worked in the industry for at least 12 months? Not many can fulfil point number 2 and 3.

So, what do you do if you don’t satisfy the criteria for changing your status to professional? Well, either you accept your lot and get on with it, or you deposit more money on your trading account.

There is a third solution. You can consider opening a trading account with a broker outside the European Union. It is legal to do so, but you need to consider your choice of broker carefully.

Brokers outside EU

If you decide to look for a broker outside the EU, you need to be aware of a few things.

  1. You may not receive the same kind of protection that you enjoy inside the EU.
  2. There are many countries around the world where they don’t even have something as basic as an “Ombudsman” in case you have a dispute with your broker.

I have had trading accounts with other brokers outside of the EU for many years. It is not as dangerous as you may think. The world is rapidly becoming a small place. I have a futures trading account with a broker in Chicago. That has never caused me any headaches.

Having said that, as I am writing this to guide you to a solution that suits you, I will be quick to add that my research has uncovered many areas where I would certainly not be opening a trading account.

For example, a colleague of mine in the industry has recommended Trade View Markets. I consider this an ill-conceived choice. The broker is based on the Cayman Islands, and is regulated by the Cayman Island Monetary Authority.

The Cayman Island banks are not protected and insured by the CIMA, and thus does not offer a guarantee on their bank deposits. Additionally, there is no Ombudsman on the Cayman Islands, so if you have a dispute with your broker, you don’t have much legal support to fight your claim.

The advantage we enjoy by having an account with an EU broker is that our deposits are protected. This level of private investor protection is not replicated elsewhere. If you open a brokerage account in the British Virgin Islands or Cayman Islands or Russia or Belize, you have no protection whatsoever. If that broker goes bust, you have lost your money. If their bank goes bust, you have lost your money.

There is no Ombudsman or any kind of retail protection mechanism in these off-shore areas, so if you decide to open an account with say MadForex.com, who is “based” in Belize, just be aware of these things.

Australia

Australia has everything that I need to feel comfortable sending my money abroad. Australia doesn’t feel like a third world country nor does it have the stigma of an off-shore tax haven.

The banking system in Australia is solid, and the 4 major banks in Australia are all in the top 50 of global banks, measured by assets. As you can see from my Google search, the Australian government has a $250,000 (Australian dollars) guarantee on bank deposits. That is about £147,000 or about €167,000.

Australia also has an Ombudsman, so if you have an issue with your broker and you need to launch an official complaint, you will have someone to look at your case. As I said earlier, this is not the case with any of the off-shore islands I looked at.

Conundrum: ASIC & FCA/CYSEC

I opened an account with TD365 in Australia. The platform is perfect for my needs and they have fixed spreads as opposed to variable spreads. I wanted to open an account with some other brokers too. Then I realised there is a conundrum with Australia.

If your broker is in Australia but also in Europe, then there is a problem. I did not know that. TD365 is only in Australia, but other brokers like IG Markets, CMC Markets, Plus500 and Pepperstone are also in London.

I contacted these 4 other brokers, and I explained to them that I wanted to trade with them under Australian laws, and I was happy to accept that I was no longer protected under EU law.

IG Markets

CMC Markets

Plus500

Pepperstone

IG Markets did something very peculiar. I contacted them in Australia, only to receive a message from IG in a different jurisdiction. I thought that was odd. They offered me to open an account, but it was not where I wanted it.

CMC was very helpful. They wrote a very nice email to me saying that they were unable to let me trade under their Australian flag because I was resident in the EU. Because they too had an office in the EU, I had to come under the branch within the EU, and as such they could not offer me the leverage I was looking for.

I like the Pebberstone platform, and I thought Pepperstone was a “pure” Australian broker, but then I had the following conversation with them:

In other words, you can open an account with a broker in Australia, but if that broker also has an office within the Euro Zone, then they must treat you according to your residency, which means you come under ESMA rules, which means no attractive margin for you. At least that is what I have uncovered.

Pepperstone might be based in Australia, but they are ALSO based in the UK. Therefore, they have to place you under their European office.

Pure Australian brokers

By “pure” I mean they are only governed by ASIC, and therefore they can accept European clients if these clients find their own way to the brokerage. It is an interesting distinction. Australian companies can’t advertise in Europe, at least gauging from the information I found on the ASIC website.

TD365 is a through and through Australian company. So is IC Markets. So is Berndale Capital. They are only regulated by ASIC, the Australian Securities and Investment Commission.

 

TD365 bank with Westpac, which is ranked 47 on the global bank list – by assets – and 87 of the largest public companies in the world. So, I feel sending my funds there is a safe choice. I don’t know who IC or Berndale banks with, because I have not sent money there.

I found other Australian brokers that are also “pure”. The problem I have with some of them is that they are predominately MT4 brokers. I am not a fan of MT4. Sure, TD365 have MT4 too, but their focus is on their Cloud platform.

IC Markets had a good selection of products as has Berndale Capital. Companies like IC Markets have MT4 and MT5 and also an ECN platform where you trade directly into the market. Their spread in indices are variable, which is an issue for me and their spread in the Dow is 2.8, which is too high. The problem I have with an ECN is that liquidity can be an issue in fast markets and my stop-loss can be subject to slippage.

Other brokers like Berndale Capital, Vantage FX are great looking brokers and websites, but they are all MT4 brokers, and it means variable spreads and it means you have to learn to love MT4, something I don’t.

I have traded with TD365 for a few months. They have tight fixed spreads, which I prefer over to say an MT4 broker. I often felt cheated when I traded the DAX with an MT4 broker. There was never liquidity at my exit points and I was too often slipped by 1-3 points.

If you find a good Aussie broker, then please email me, and I will do a review of them. I suggest you do your own research, and consider the pro’s and con’s of sending money to Australia.

From spread trading to CFD trading

Another matter to consider is that you will perhaps go from trading “spread betting” to trading CFDs. It is not an enormous difference, but the difference is there, albeit subtle.

I have an account with a “base” currency. Your “base” is what you decide it to be, although the choices are dictated by the broker. I have my base in Danish Kroners, and TD365 was the only one that had that currency.

For people in the UK it would be natural to have a “base” in Sterling, but in principle a trader from say Germany could select to have his “base” in Euros, and a trader from Norway could select to have his “base” in Norwegian Kroners, and so forth.

The advantage of this is that you don’t have money sitting in a different currency to what you are paying for goods in your own country. Otherwise you will have a currency risk on your base currency.

Let’s take an example of a trader from England placing a trade in the Dow. He or she will execute the trade in “dollars per point” rather than what he is used to, which is in “pounds per point”. Once the trade is CLOSED, the broker will immediately “sweep” your US $ profit or loss into your “base” currency using the spot rate of that moment between your “base” and the currency you traded in.

TD365 Trading Ticket

Not all brokers treat customers fairly

Here it is worthwhile mentioning that not all brokers are alike. I have traded with CFD brokers that used some truly outrageous “sweep” rates. It meant that my losses swept back to my “base” were bigger than they should have been, and my profits were smaller than they should have been.

Be aware of that.

Conclusion

ESMA has implemented rules which they consider are for your benefit. If you strongly oppose these implementations, then there are ways you can maintain your old margin. There are advantages to the ESMA rulings, which you should consider, before you decide what to do. For example, you don’t have a Negative Balance Protection elsewhere in the world. I have written about the advantages of looking outside the EU, knowing full well that you and I are going to have to accept more risk by doing so. There are many advantages of an Australian broker:

Margins

Protection

Top Tier Bank

Spreads

1-point spread

FX Spreads

Application Process

No fuzz

There are disadvantages too:

CFD's

Negative Balance

I have been critical of ESMA, but I must concede that not all their initiatives are without merit. For example, they have banned binary betting outright. A big hurrah for that decision. Their Negative Balance Protection rule is another very good initiative.

The Negative Balance Protection rule means that a client cannot end up owing money to the broker. It does open up questions about moral hazard trading by clients ahead of ground-breaking news, but I suspect that is up to the broker to manage.

The conclusion is that there are options available to traders who want to trade with more leverage than the ESMA directive offers, but they would be wise to shop around and weigh the pros and cons of an account inside vs outside the EU.

If you have any questions, please do not hesitate to get in touch with me on tom@tomhougaard.dk

Tom Hougaard