I am trying to understand something about Forex because it just doesn't make sense to me.
I can get a 1:100 margin with most brokers. This sounds great, but how can these brokers have that much in reserves?
If I put in 100 dollars and get 100,000 dollars to trade it doesn't take many customers to reach a billion dollars neccesary in reserves to place real market orders.
How can a bucketshop like forex.com or fxcm.com actually post real trades unless they have the money which they are offering as margin (100,000 in my example) money. They would need to actually have that much money to put in the markets. Or is what is really happening an "advanced demo" where you put in your money and they pretend to give you margins and bet that you lose so they end up keeping your cash.
This just doesn't make sense to me, the only banks I think of that have billions of dollars in cash are federal reserve banks.
Can someone please explain how a bank can place real market orders and stay liquid if they don't actually have the money they are giving you on margin? If the answer is that these banks do not have millions of dollars they claim to have then explain to me why this is a legitimate form of investment, when a company could go bankrupt at any second?
Thanks,
Ray
I can get a 1:100 margin with most brokers. This sounds great, but how can these brokers have that much in reserves?
If I put in 100 dollars and get 100,000 dollars to trade it doesn't take many customers to reach a billion dollars neccesary in reserves to place real market orders.
How can a bucketshop like forex.com or fxcm.com actually post real trades unless they have the money which they are offering as margin (100,000 in my example) money. They would need to actually have that much money to put in the markets. Or is what is really happening an "advanced demo" where you put in your money and they pretend to give you margins and bet that you lose so they end up keeping your cash.
This just doesn't make sense to me, the only banks I think of that have billions of dollars in cash are federal reserve banks.
Can someone please explain how a bank can place real market orders and stay liquid if they don't actually have the money they are giving you on margin? If the answer is that these banks do not have millions of dollars they claim to have then explain to me why this is a legitimate form of investment, when a company could go bankrupt at any second?
Thanks,
Ray