Forex Mistake #6.1.2 – The Terms and Conditions Conundrum

Why the Terms and Conditions Conundrum could get you Broke?

There are two ways of learning from mistakes: one is by making your own and the other is learning from the mistakes of others. Needless to say the latter is less expensive and a lot less frustrating, but it’s not as effective. After all, nothing can teach you better that a wall is hard than banging your own head against it. But anyway, if you want the less expensive option, take my word for it and read the Terms and Conditions of your broker. Here’s why:

 

How T&C could get you Broke: The Mysteries of the T&C

Almost always the Terms & Conditions document is hairy and has quite a lot of pages and that’s why some traders find it easier to just click on “I agree” button than actually reading and understanding the document. But that simple click means exactly what it says: that you agree with everything that’s written inside the document. When dealing with a “top shelf” broker, you are somewhat protected against weird terms and conditions, but some of the things I’ve seen are almost beyond imagination. I am not going to name the brokers, but I am going to tell you about some of these weird T&Cs:

 

Artificial Intelligence

Have you heard of it? Of course you have, but what you probably didn’t know is that a certain broker says that all profits made with the use of artificial intelligence software will be erased. Ok, artificial intelligence is not something you can get at your local IT shop – in fact I don’t know if true AI exists – but that is not really the main issue. The way they identify AI software is the problem because they say something along the lines of: if we believe you are using artificial intelligence software, then all your profits we consider you’ve made with the use of that software will be canceled. In other words, if we say its AI then it is AI so give us back the money. They also mention stuff like at our sole and absolute discretion so basically they can say about any EA that it uses artificial intelligence. I bet you would want to know these things before clicking “I agree” so take the time to at least skim through the T&C.

 

Scalping

I’ve read a broker’s “Prohibited Trading Practices” section (within their T&C) and scalping was one of those prohibited practices. Ok, some brokers don’t like scalpers, but if you are going to say scalping is prohibited, you have to define it clearly. The definition of scalping is not very clear among traders as I’ve seen people say “I’ve made a quick 15 pip scalp” and for others scalping is taking 1, 2 or 3 pips. So defining a trade as a scalp is subjective and depends a lot on the type of trader you are: of course if you trade the daily and weekly charts you could consider a 15 pip trade a scalp. So if brokers are going to prohibit scalping they should also give you their clear definition of scalping, especially since this particular broker can cancel all profits made through scalping. Do you agree with having your profits taken away? Well if you haven’t read the T&C and you clicked “I agree”, guess what… you agreed.

 

News Trading

This is a good one: a certain broker warns traders that profits made as a result of news will be canceled if they exceed 10% of the trader’s account. Oh really, but if I lose 10% of my account due to news releases, do you give me my money back? I bet not. And I bet on another thing: you would have avoided that broker if you would have read their Terms and Conditions.

 

The Lesson to Be Learned

I know it’s a tedious job to read the entire document but doing so will save you a lot of headache. What if you are a scalper and you just invested 10,000 USD with a brokerage that doesn’t allow scalping? Sure you can take your money out and move to another broker but you will have to pay some transfer fees and you will lose precious time (opening the account, depositing, sending the required documents, etc.). Simply taking the time to read the T&C will get you out of unpleasant situations and will benefit you in the long run.

 

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