How to avoid getting screwed with a phone order

Discussion in 'Forex - Currencies Forums' started by Daniela-TFC, Jul 11, 2014.

  1. Daniela-TFC

    Daniela-TFC Active Member

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    According to a recent article in the German „HandelsblattUS prosecutors are intensifying their investigations in the foreign exchange industry. The Department of Justice started to question salespeople at major investment banks regarding their practices.

    Investment banks usually don’t charge a fee for currency transactions, so their profit is the difference between the rate they give a customer and the rate they hedge the exchange at. Nevertheless, apparently investment banks such as London based Barclays, Zurich based UBS and Goldman Sachs have charged corporate clients a so called “hard mark up”.

    Here is how it works.

    Traders at these investment banks receive a phone order to buy say 10 million EUR/USD. They execute the trade immediately and then wait and see if the price moves. If the price goes up they charge the client the higher price and send an email confirmation that the trade was executed at that higher price. According to the article the markup charged is sometimes up to 30 pips. This goes of course against any ethical code of conduct but apparently that is what is happening when corporate clients who infrequently traded forex call their trusted investment banks.

    What conclusions can we draw from this?

    While it is rather unlikely that you will call an investment bank tomorrow to place a 20 million FX order you might experience the situation that your internet connection gets disrupted. This is serious because you still have an open position in the market which is not secured with a stop loss yet. Before your internet got disrupted the position went against you and you decide to close the position because you cannot follow the market without realtime prices.

    Please make sure that you always have the phone number of your broker`s dealing desk available. If you do not have internet access you can’t go online and google that number…

    While it is highly unlikely that your Forex broker will screw you with a phone order you should always ask for a two way (Bid/ Ask) price before you place a trade. You then note down the time and the price in order to verify later on if the currency pairreally traded at that specific price at this time.
     
  2. dianethare

    dianethare Senior Investor

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    Feels really risky and spooky altogether...i don't think i'd be one who wants to deal with a huge sum of my money with a phone order...still, thank you Daniela for the informative post on the topic.
     
  3. ormaybeso

    ormaybeso Well-Known Member

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    I agree with what you say and was thinking it while reading your post. When you're making an order, 9/10 you'll want to make sure you have a stop loss implemented, even if it's extremely low so that if something does mess up, you won't loose too much money. When you're dealing with money like this your backup plans need backups.
     
  4. BudFox

    BudFox Well-Known Member

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    "This is serious because you still have an open position in the market which is not secured with a stop loss yet."

    Never, ever trade without a stop loss. You dont control markets, you follow them and they will do what they want according to millions of other people around the world. You trade without a stop loss you are effectively relying on no market shocks and that is not a safe thing in todays world.
     

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