G’day Traders,
Myself and the originals at LIS – Lee, Omar, Martin and Robbie have decided to break the winter boredom and have a poker night tonight. I am looking forward to it as it is always interesting and the way we like to spend time together. In the markets, the boredom also continues so I thought I would answer a question one of our Area Reps asked about, and something clients ask a lot – why did Aussie Rob and I choose to trade with IB?
I actually wrote a big article on the risks of some Australian brokers for the next Lifestyle Investor Magazine. This will give you more insight and I talk there about our choice, but basically our primary concern was security. Aussie Rob and I both thought the industry was changing and that many Australian brokers would fail. It’s not only about IB, but also about the type of account we have with them. One where we can’t touch your funds.
This is crucial because in all the brokers we have seen fail the temptation to put their greasy little fingers on client funds got too much. A previous arrangement we had with a broker to trade through IB was actually changed so they do have access to client funds – this was a big reason why we went direct with IB and asked clients to change.
I believe an account, such as what we provide through IB, that is segregated, insured and has real time margining is the most important thing. These three features combined are critical to have in any account. Why? Because these not only make your account more secure, but also more efficient and accounts that don’t have this have higher risks. Why wouldn’t a broker insure a client’s funds? – answer – because it is too costly to do so because the insurer sees high risks.
Many Australian brokers claim they are backed by big banks etc but are they – even if their name and logo suggest they are. Many even have margin facilities you have to apply separately for with another party / division. This just allows them to charge you more.
This is why we chose IB. Secondary considerations were the ability to trade a range of markets, price and functionality. I am the first to admit that for a new trader the IB platform can be difficult. That is why we provide training and are working hard on delivering Trade For You (for options and soon ETFs) and the new software that will sync with Forex, Commodities and ETF traders’ simulator and live accounts.
I don’t believe you should sacrifice security of funds for anything, including ease of use. Yes it is hard to explain, especially because some people feel that as an Australian, wouldn’t an Australian broker be safer? It is not about where an account is from, but about what features they have to ensure security.
Funding is another important thing. This is why we encourage clients to fund using securities held at other brokers. They can then use the margin to trade and could even withdraw some cash to hold in the bank. I discuss all this in the training on the LIS website.
Some traders just don’t have these kinds of funds. That is why we use Forex FS. This allows Forex traders to trade smaller amounts than through IB and therefore means Forex traders can trade with smaller accounts. We also have IG Markets, who we believe is the market leader in Australia for CFDs but, again, this is for small accounts where capital is risk capital only. If US regulators don’t allow US citizens to trade CFDs there are risks with this product and CFD providers to make money through providing this facility – therefore you are paying for it. IG markets does allow you to trade some products (mainly Forex) on a small account due to margin, but the main use we have it for is hedging.
Every client should have access to the ‘Lifestyle Trader Apprenticeship’ stream on the LIS website. If you go through the First 30 Day course (which you can do in one day if you like) you will learn more about how to get the most out of your account with US.
Long Term investors may be seeing their last chance for the next year or so to exit equities (or hedge) at such high prices. Last night the markets fell back slightly from the strong resistance area I have been talking about. The markets may not do anything, but from here the risk is that we won’t come back for a long time. I keep saying that good earnings pushed the markets higher – now that is basically over, the market should refocus on economic data (the future) and that should change the trend.
Commodities – We are seeing a lot of markets rally. Sept Crude fell back from the top of its recent range near $80 (just like equities).
Food supply is very much in the news in Australia right now. In the US the Hog market is reacting to some of the same comments. Cocoa is experiencing its longest rally in a month – again over supply issues. It is now up four days straight and could continue with rain and black pod disease threatening crops in the world’s largest exporter, the Ivory Coast. Coffee also gained. Cotton however declined along with OJ as rain in the US south eased concerned about dry weather. I am telling you, now is the time to be focusing on these areas.
Of course Grains also tend to do well at this time. Corn has fallen again. Soy was mixed and Wheat continued its beautiful upward trend. Sugar also continued higher – now it is demand from Pakistan and Philippines that may deepen the shortage.
The US S&P500 -0.38 European top 500 -0.3 and UK -0.86%, The Nikkei was up a huge +2,7%, HK +0.56, China +2,43 (these Asian markets look to me like a better place for long term investors showing strength recently) and Australia +0.72%.
ETFs – There are a lot of positive words for those who are short US, European and Australian funds today.
Options – I’m still looking for BECS, but will be patient and look for markets to move lower before searching BUPS (just a little lower for ICS)
Todays Top tip!
One of the other benefits of trading through IB, is if you open an Individual account, have it funded and active, you can very easily open another identicle account, this is called Duplicating. Why duplicate? Well, you can have two accounts, one for one strategy one for another or for trading other products. This of course does give you access to another simulator account, which alot of traders ask for.
How do you do it, ask your account manager, it is easy we can talk you through it!!
Information for Beginners – Those who haven’t started live yet and want to trade Forex could probably wait until September to start (when trading should really improve). I would seriously look at Grains and Options before then. Take this time to gain more knowledge.
Information for Intermediate – This could be the start of some big moves on the long side in some Commodities markets.
Information for Advanced – A good time to be diversified, but also using choppy market strategies on financially based products could be smarter than looking for big moves – unless something breaks.
Scott Goold
Head of Lifestyle R&D
