How an unknown Scandinavian broker is changing the industry one person at a time.
The foreign exchange market offers many advantages. However, due to unscrupulous brokers and a complex regulatory landscape, traders continue to face numerous obstacles in trading forex successfully. In this article, we’ll explore the current state of forex and how the progressive Swedish-based Scandinavian Capital Markets has introduced superior trading conditions with its brokerage services.
Advantages of the Forex Market
First, let’s consider the benefits of trading the forex market:
- Transaction costs are relatively low. Unlike other markets, there are no commissions, clearing fees, exchange fees.
- Lot sizes are not fixed, allowing traders flexibility in sizing their positions.
- Bid/ask spreads for major currency pairs are generally tight.
- The market is open 24 hours during the week, allowing multiple trading opportunities day and night.
- You can easily trade both sides of the market – long and short. In equities trading, selling short entails special margin requirements.
- Substantial leverage is available. While typical leverage in the stock market is 2:1, forex trading allows much higher levels.
- The tremendous liquidity of the forex market makes it easy to get in and out of the market under normal conditions.
- The barriers to entry are comparatively low. You can open an account for much less than a typical stocks or futures trading account.
Challenges of the Forex Market
Now that we’ve reviewed the advantages, let’s delve into the challenges faced by forex traders. To better understand this, we need to first take a look at the different types of forex broker.
Dealing Desk (DD) Brokers, also known as “market makers.” Dealing Desk Brokers manage client trades within their own liquidity pools. They usually do not require an external liquidity provider. They make money from the bid/offer spread and also by taking the other side of a client’s trade.
Dealing Desk Brokers are the modern-day version of the ‘bucket shop’ described in the classic of trading literature, Reminiscences of a Stock Operator. Dealing Desk brokers actually bet against their own clients, knowing that the majority of retail traders will lose money.
Requotes (when a broker is not able or willing to execute a trade based upon the price entered), widening the bid/offer spreads to hit stop losses, and delays in filling orders are among the controversial practices of dealing desk brokers.
Because they profit when the client loses money, Dealing Desk Brokers have a fundamental conflict of interest.
ECN/STP Brokers. STP (Straight Through Processing) brokers route client orders directly to large liquidity providers who act as counterparties to the trade. Clients of STP brokers enjoy direct market access (DMA) and their orders are filled at the best possible price from a liquidity pool made up of banks, hedge funds, and institutional investors. STP brokers only make money by marking up the spread, so there is no conflict of interest.
In 2017, as Sweden’s first STP brokerage, Scandinavian Capital Markets helped to blaze a trail with this model.
New Regulations in the Forex Industry. The European Union’s 2018 ESMA and MiFID II legislation has placed important restrictions on the forex market. ESMA banned binary options and the practice of offering account bonuses. Additionally, new leverage rules were introduced: 30:1 for major currency pairs, 20:1 for non-major pairs, gold, and major indices, 10:1 for other commodities and non-major indices, 5:1 for stocks and 2:1 for cryptocurrencies.
Meanwhile, MiFID II has imposed more reporting requirements and tests to increase transparency. MiFID II requires forex brokers to store all transactions for a minimum of five years and traders using algorithmic trading must register as an asset management firm and submit their algorithms for review. While traders benefit from greater protection under these regulations, they have lost a degree of flexibility.
Scandinavian Capital Markets is an authorized broker registered with the Swedish Financial Supervisory Authority (FSA) and can offer leverage of 100:1, while operating in the highly reputable and stable Swedish market, within the European Union.
Arif Alexander Ahmad and Michael Buchbinder, the founders of Scandinavian Capital Markets, both had extensive experience in the forex market before launching their company. They were more than familiar with the strained broker/client relationship in the traditional model of forex brokerage and the desperate need for change in the industry. Consequently, the pair decided to build a forex brokerage built on integrity and trust, putting client needs at the top of their list of priorities.
Valhalla is a splendid hall where slain warriors live blissfully under the leadership of the god Odin. It is a paradise of abundance, where those warriors feast and drink each day. Scandinavian Capital Markets is working to create a brokerage that recalls the great hall of Nordic myth, a haven of fairness and abundance for those who may have been wounded in battle by their experience with other brokerages. Guarded by fierce wolves, Valhalla also represents safety and security – another hallmark of Scandinavian Capital Markets.
The Valhalla Campaign invites clients and key figures in the trading industry to Stockholm to show them first hand a better way of doing business. Guests have included Andrew Saks-McLeod of Finance Feeds, Hugh Kimura of Trading Heroes and myself, founder of Traders Log. The experience also shows partners the fantastic cultural attractions of Stockholm, including historic spas, architectural landmarks, and great food (naturally there has to be some feasting!).
The Valhalla campaign reflects the importance that Scandinavian Capital Markets places on the person, rather than the profit and treating clients like partners, not just a number in a spreadsheet.
Scandinavian Capital Markets is creating a forward-thinking, client-centric model of forex brokerage. The underlying belief of the founders is one that resonates across all industries – that in the end a superior product and service will win. The firm offers all the benefits of the forex market along with a safe and secure trading environment within Sweden’s rigid, world-class financial system.