2 rules for getting rich by ripping off customers – you know who knows them best? As many of you will know from my broadcasts on BBC and Sky, I am fed up with overpaid underperforming City bankers and fund managers. Another group I can’t stand are rip-off brokers.
As the world’s leading authority on online trading (18 books, 8 languages, 200 FT columns ‘Diary of an Internet Trader’, Bloomberg TV’s in-house Online Trading expert) I can tell you a whole new bunch of ways the market is ripping off clients – these are classic rules for getting rich by ripping off customers.
Make It Simple Stupid (MISS)
Making trading look like something else, something easier, something which people do for fun online is a way to entice people into the ‘game’ and ‘gamble’ of trading. But trading isn’t a game, it isn’t a gamble. The broker just wants to lull you into thinking that.
Just as in any business if you want to pick a pocket make it easier for the owner of the pocket to put their hand in their pocket and give you what is in there. So a whole load of brokers came up with casino type trading games. Like all Casinos the odds of you winning are hidden. Like all con-tricks in the City the cost is not transparent.
Our regulators do not force the brokers to tell you the mark-up. They tell pension companies. They tell insurance companies. They tell all financial intermediaries, but they do not tell online brokers who gamify.
And what is gamification – it is online binary trading – quick will the market go up or down in the next 5 seconds? It’s just like betting on Football. So what’s wrong with that? In Football you know you do it for fun. In trading, everyone does it to get out of life’s problems.
Surely some of this is regulated? Yeah, right – get regulated out of Cyprus and use Eastern European banks, and you don’t even have to worry about the client winning – you’re never going to even pay them their capital back. The Cyprus regulator is to regulation what the Syrian Government is to human rights.
Own the Price
Brokers used to match buyers and sellers, but they realised that 90% of private investors lose money, so why should they match, like estate agents, and be more like a casino, and be the house, bet against the client. It’s completely legal’ you just tell the regulator you are providing a service and the contract small print does the rest.
Next you own the price. If you’re the house, the client enters, and more importantly exits, at your price. In any market if you monopolise the exit of a contract, you win over time, like in a casino – think about it.
So what does an expert use. I use a double regulated blind agency. What? A broker regulated by both a stock market listing and SEC/FCA regulation (the only two regulators I trust). ‘Blind Agency’ means they do not bet against you, they just match buyer and seller without knowing which you are.
