Why Commission Free Trading is Costing You Dearly


By Dale Gillham |


Trading Forex has increased substantially largely due to the commission free trading or no commission trading propaganda surrounding these products.

Unfortunately, what most retail clients fail to understand is that when they trade Forex with a broker who is a market maker (where they make the market), they decide on the spread between the bid and ask price that you pay. So in reality, commission free trading is not free at all, as it costs you dearly in lost profits and bigger losses. Let me explain…

Why commission free trading is not actually free

Typically, the spread you pay is much larger than a broker who mirrors the underlying asset, which means the profits you make amount to a lot less and your losses amount to a lot more when trading with a market maker. So while it may be promoted as commission free, you will pay one way or another.

Another fact that retail clients fail to understand about these products is that the money deposited into client trading accounts often becomes part of the broker’s revenue due to the client’s lack of knowledge and experience when trading these markets. Imagine a business model where you could predict in advance how much profit you could make based on the amount of money deposited into client accounts.

While Australia is pretty lucky when it comes to the quality of our stock brokers, there is always a small minority that will take advantage of the unwary. Last week, the Federal Court ordered Forex Capital Trading to pay a $20 million dollar penalty and the sole director to pay $400,000 for misconduct and breaches of his duties in what has been described as a Wolf of Wall Street type culture amounting to systemic unconscionable conduct.

As many of you know, I always advocate that traders get educated about how to trade in leveraged markets, so they are abundantly clear about the risks of trading these products. While I applaud ASIC and the courts for their continued efforts in shutting down the bad apples in our industry, the responsibility firmly lies with each and every trader to do their research and be suitably experienced, and skilled before attempting to trade these high risk markets.

What were the best and worst performing sectors last week?

The best performing sector last week was Energy up 8.5 per cent followed by Utilities up 5.8 per cent and Consumer Staples up 2.99 per cent. The worst performing sectors included Information Technology down 1.07 per cent followed by Consumer Discretionary up 0.11 per cent and Healthcare up 0.68 per cent for the week.

The best performers in the ASX/S&P top 100 stocks included Origin Energy up 15.69 per cent followed by Worley up 15.57 per cent and Santos up 12.21 per cent. The worst performing stocks included Appen down 8.86 per cent, followed by Link Administration down 6.24 per cent and Evolution Mining down 4.92 per cent.

What's next for the Australian share market?

In a strong move not seen since late last year, the All Ordinaries Index is looking bullish after two weeks of solid gains in which it rose 3.83 per cent, which is a great sign. Over the last twelve days, the market has only traded lower than the previous day on two days, as our market continued to rise to achieve a new all-time high.

Like everyone, the bull in me would like to see this last forever, however, we know that markets eventually fall away. Right now, we are getting close to the target I mentioned last month of 7,600 points, and while the market could trade higher to around 7,800 points before it falls away, the realist in me suggests that we should expect the market to peak anytime soon.

My preferred sectors this year still include Energy, Materials and Financials, as there are some good opportunities with the bigger blue chip companies. That said, I would caution those with a fear of missing out right now because lately I have seen investors buying into stocks that have previously risen strongly only for them to enter just before they fall away.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.


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