Does broker make money from spread? | Forex Factory

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Does broker make money from spread?

  • #1
  • First Post: Nov 23, 2017 2:41am Nov 23, 2017 2:41am
I was thinking that customers(traders) are those who place orders. Then you buy an asset from a customer and sell it to another customer. In this case, how broker benefits from spread?
  • #2
  • Nov 23, 2017 3:13am Nov 23, 2017 3:13am
Quoting xooox
I was thinking that customers(traders) are those who place orders. Then you buy an asset from a customer and sell it to another customer. In this case, how broker benefits from spread?
First of all you are talking about Spot markets (CFD etc.) which are decentralized so the broker is most likely your counterpart, why? he give quotes to you, which means also he great a market with his orders for you to take (Liquidity). Since he quote what ever he wants to you he can profit from that difference (aka Spread). The difference from "the real price of Spot Market" to the price he gives you. And since in 95% of brokers even ECN's, you only consume Liquidity. Why? because you have only one option, the market order. No limits. Real limit orders. So you dont create Liquidity and you also dont have the ability to set the specific price where you want to make a deal.
  • #3
  • Nov 23, 2017 4:07am Nov 23, 2017 4:07am
Depends on a lot of factors.

If a broker has internal matching where they match customer orders,then they get all the spread & commission.

If a broker hedges your trades with an external source (bank,it etc.) they may get part of the spread,all the spread or nothing. Again, depends on the price they get at that time.

If a broker is a market maker, they get everything from you,spread,commission and your money
  • #4
  • Nov 23, 2017 4:47am Nov 23, 2017 4:47am
Spreads, commissions, and the whole turnover makes them money. Some scam ones really may take your money away, as it was already said here, so I wish you not to meet such companies
  • #5
  • Nov 23, 2017 6:10am Nov 23, 2017 6:10am
So this prices are just some magic generated by broker software? Or real orders placed by other traders?
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  • #6
  • Nov 23, 2017 6:23am Nov 23, 2017 6:23am
Quoting xooox
So this prices are just some magic generated by broker software? Or real orders placed by other traders? {image}
What you show us is a Ladder of MT4 but since mt4 has not Depth of Market, you cant see the available contracts on Bid and Ask. Those Prices basically the current at time bid and ask price is what is been quoted by broker. A broker maybe creates the market and quotes or either is the middle man and he takes quotes from Liquidity Providers , ECN pools or individuals. In order you to take a position buy or sell a contract there must be always someone who is willing to sell / buy from/to you. Since you execute always a market order you take the best available price on bid or ask. So you always need to take from someone else the contract, so they set the price and you accept that.
  • #7
  • Nov 24, 2017 3:31am Nov 24, 2017 3:31am
its called broker dealer internalization.

they are dealer type
Made in Malaysia <3
  • #8
  • Nov 24, 2017 7:09am Nov 24, 2017 7:09am
Quoting stoxos
And since in 95% of brokers even ECN's, you only consume Liquidity.
Could you please clarify: what is "only consume Liquidity" ? And how ECNs are important here?
  • #9
  • Nov 24, 2017 8:43am Nov 24, 2017 8:43am
Regarding the topic question. Please anybody help with the example. If I buy 1 lot of EUR/USD for 1.2000 then sell for 1.2010, then I earn 10 pips: 0.0010 * 100 000 = 100 USD. At the same time EUR/USD spread is declared to be 0.7pips. So since the price moved 10pip > 0.7pip the broker spread is unimportant for me ? Or to which part of the calculation does spread apply?
  • #10
  • Nov 25, 2017 5:18am Nov 25, 2017 5:18am
Quoting xooox
{quote} Could you please clarify: what is "only consume Liquidity" ? And how ECNs are important here?
ECN stand or Electronic Cmmunication Network its a network with partisanship where order match each other. You "only consume Liquidity" because in cfd spot market except multilateral trading facility type brokers, you dont have the ability to set a Limit order. Those you think in mt4 platorm as limits are market orders and they execute from meta-quotes server as a market order when the price is equal to the price you set it. So you only consume orders aka Liquidity.
  • #11
  • Last Post: Dec 7, 2017 5:44am Dec 7, 2017 5:44am
Quoting xooox
Regarding the topic question. Please anybody help with the example. If I buy 1 lot of EUR/USD for 1.2000 then sell for 1.2010, then I earn 10 pips: 0.0010 * 100 000 = 100 USD. At the same time EUR/USD spread is declared to be 0.7pips. So since the price moved 10pip > 0.7pip the broker spread is unimportant for me ? Or to which part of the calculation does spread apply?
read about whats a ask and a bid price, for what you can buy and for what price you can sell!
when you buy for 1,2000 its with ask price and when you sell for 1,2010 its the bid price, so there is the spread already payed and out.
the difference between ask and bid price from same time, thats the spread. and the spread is not fix, its total different at different volumes.
read about market auction, prices, bid and ask. you need to read many basics , thats very important before you start.
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