What happens after you press buy/sell on your brokers end? | Forex Factory

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What happens after you press buy/sell on your brokers end?

  • #1
  • First Post: Dec 19, 2017 12:18am Dec 19, 2017 12:18am
Hello All! I have been trading Forex on and off for the last couple of years. I am a Share trader (for those of you in North America that would be "Stocks") trying to make a transition into Forex. There is just something I don't understand about the whole Forex purchasing/selling process.

When you purchase a share/stock your transaction is processed by the exchange, verified then the number of shares you have purchased is allocated to you. What the hec happens in Forex?

I have read different things from different people about Market Makers and ECNs etc... but what actually happens? Is Forex like CFDs? Do you actually "own" the USD or EUR you're purchasing? or is it like CFDs where you're just speculating on the price? Do we own the actual asset when we make a purchase? How does it all work in the background with your Forex broker? When the broker offers you leverage at 1:100 or 1:500 does that mean they are "loaning" that money to you to speculate on the Forex market? Whats in it for them? If anyone knows anything about the whole process I would greatly appreciate your input.

This is one of the things that are keeping me from getting fully involved in Forex. I don't understand how it all it all works in the back end. Thank you all for reading and contributing!

Sincerely,
Azli1
  • #2
  • Dec 19, 2017 5:45am Dec 19, 2017 5:45am
when you enter an order, it gets sent to an aggregator. Depending on the broker, the aggregator calculates the brokers exposure and a liquidity provider or the broker may be the counterparty. You don't actually own the "USD" or "EUR", - just borrowing. You will get a ticket/trade number.
The broker makes money by charging you a commision and/or makes profit on the spread. Or sometimes being the couterparty to traders who exhibit behaviour that statisticallyis prone to failure.
  • #3
  • Dec 19, 2017 4:03pm Dec 19, 2017 4:03pm
Quoting KoiFish
when you enter an order, it gets sent to an aggregator. Depending on the broker, the aggregator calculates the brokers exposure and a liquidity provider or the broker may be the counterparty. You don't actually own the "USD" or "EUR", - just borrowing. You will get a ticket/trade number. The broker makes money by charging you a commision and/or makes profit on the spread. Or sometimes being the couterparty to traders who exhibit behaviour that statisticallyis prone to failure.
Hi KoiFish thank you for your detailed response. That was very helpful.
  • #4
  • Dec 19, 2017 11:56pm Dec 19, 2017 11:56pm
this short video maybe interesting for you:

Inserted Video
there is always, always another trade!!
  • #5
  • Dec 20, 2017 2:22am Dec 20, 2017 2:22am
Pretty old video showing the market maker model explained. Having a DMA the whole story looks different.
  • #6
  • Dec 20, 2017 3:59am Dec 20, 2017 3:59am
Quoting profitfarmer
this short video maybe interesting for you: https://www.youtube.com/watch?v=eBcLOMDj19Q
Thank you for the video profitfarmer. It was helpful in understanding how the Forex brokerage model functions under a Market Maker. Basically they hedge your trades to protect themselves from the exposure. Very helpful Thank you.
  • #7
  • Dec 20, 2017 4:33am Dec 20, 2017 4:33am
Quoting Drolph
Pretty old video showing the market maker model explained. Having a DMA the whole story looks different.
um,
indeed, not a new video.
what it really talks about is a hybrid model. you can believe that your 0.01 lot from ECN taken directly by the prime broker, if you wish, i dont.
most so called ECN uses a hybrid between A and B book.
there is always, always another trade!!
  • #8
  • Dec 20, 2017 5:34am Dec 20, 2017 5:34am
Quoting profitfarmer
{quote} um, indeed, not a new video. what it really talks about is a hybrid model. you can believe that your 0.01 lot from ECN taken directly by the prime broker, if you wish, i dont. most so called ECN uses a hybrid between A and B book.
Pretty biased assumptions, my friend.

There are true agency model brokers out there who are not allowed to trade on their own desk.

I am quoting JFD as a known example herefor:

"A 100% Agency model, where a broker acts only as an intermediary processing all orders to the interbank or exchange market, with no right to deal on their own desk, has been proven to be a superior choice for sophisticated retail investors. But, the only way to prove that you are trading with a 100% DMA/STP broker is with authentic Post-Trade Transparency! Only if a broker is able to provide traders with such details, can you be sure that it is running an ethical business protecting your interests."

The hybrid model exists next to that as well, you are right. But the mentioned DMA access is a whole different story. So my statement is still valid.

And well, do not make any assumptions on the trading volume of others.. you may be wrong.
  • #9
  • Dec 20, 2017 5:47am Dec 20, 2017 5:47am
Quoting Drolph
{quote} Pretty biased assumptions, my friend. There are true agency model brokers out there who are not allowed to trade on their own desk. I am quoting JFD as a known example herefor: "A 100% Agency model, where a broker acts only as an intermediary processing all orders to the interbank or exchange market, with no right to deal on their own desk, has been proven to be a superior choice for sophisticated retail investors. But, the only way to prove that you are trading with a 100% DMA/STP broker is with authentic Post-Trade Transparency! Only if...

1. i dont say your statement isnt valid. it was a video, that should help to give some insight what may happen one one press buy/sell button.
( it was not to deal with many things, re-quote, off quote, wrong quote, platform freeze, connection drop, blackout, etc, etc...just some basic ideas)

2. i dont care to assume your or anyone's trade volume. couldnt care less. you can scratch your, and write any traders, include mine there. that was how the wording came to my mind, and lacking a proof reader, or a ombudsman to politically correct every typed out answer, that is what it is.
you reading things into post that isnt there, nor is the post really about...
if you feel so offended on not writing "your 0.01 lot", pls PM me about your suggestions, and i will edit it for your satisfaction. deal?


happy trading!
there is always, always another trade!!
  • #10
  • Last Post: Dec 20, 2017 6:54am Dec 20, 2017 6:54am
Quoting profitfarmer
this short video maybe interesting for you: https://www.youtube.com/watch?v=eBcLOMDj19Q
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