How do retail forex brokers lose money when we win?

My friend,
I still don't see any differences between ECN and classic brokers. FXCM offers spreads as low as 1 pip, Gain Capital have really really low spreads, fxclub offers no spread at all, but of course they are commission based. So, what the point to trade with small brokers which have access to ECN feed?
Go get it at well established firms, and at the same time you can get guaranteed fills, fixed spreads and much more.

80% of $3.98 trillion is $3.184 trillion dollars daily, by the top 10 banks. $3184 billion.

19.9% of $3.98 trillion is $0.792 trillion dollars daily, which is still mostly all the other banks. or $792 billion.

0.1% of $3.98 trillion is $0.00398 trillion dollars daily, which is only $3.9 billion daily.

All the single traders out there are literally one thousandth of the size of the top 10 big banks.

"guaranteed fills, fixed spreads and much more"

I've been trading with IBFX, not the biggest but in the top 10 of retail brokers, and I have had seven trades recently. Only 2 of them actually obeyed their agreed spread. Because their claim was that tick data skipped my point of entry, and they couldn't fill it even though they were pending orders, place 20 pips away up to 15 mins before hand. I've opened live accounts with a couple of these fixed spread brokers and they all seem to get tick data that skips over the required fill point. guaranteed to fill at their best value not the best values.



Take a look at this.... it would only work properly with hedging brokers which tend to be the fixed spread brokers. Because with true ECN the dealer / broker does not touch the data feed, they just supply it.
I will also upload a text file when I find it to show you how a true ECN works, thats why I think you are missing my point.

http://www.forexfactory.com/showthread.php?t=70582

I, as a customer, want to be able to sell and buy at any time and at reasonable market price.
All companies I mentioned above ( fxcm, gain, fxsol, fxclub) are ready to provide me such ability. Why should I trade with small a broker who claims that they have access to interbank feed through ECN?

Because ECN is always going to have access to the 3.1 trillion, while the fixed spread broker at the biggest of them only have access to 253 million. So if you are thinking size you are going for the big company with tiny access. That's a thousandth of the size.

With true ECN sometimes the Bid and ask are actually reversed, at those points you are in profit immediately you click. Rare granted but EURUSD USDJPY are consistently 0.2 - 0.8 pip.
AUDJPY is consistently 1 - 3 pip. GBPJPY consistently 2-3 pip.

If you really are worried about size then MBTrading are about 1/4 of the size of IBFX. So they are not small.

Here is the text thing I said I would give.

Maybe that will explain, especially the quote filling part. This is simply because of volume.

But we are talking about 253 million dollars in cash! Try to figure out how much money is it in trading volume with a leverage just 30:1.
And honestly, I don’t believe that you can trade with negative spreads. You probably meant that you can catch some brokers’ delays, but it is always possible to do between brokers.

Yes same with my quotes above and that is not including any leverage. 1:1

If you include 30:1 leverage you're looking at 115 trillion, $115 000 000 000 000 for ECN feed.

Listen, the most important thing is that you happy with the broker you currently trade with!!! I'm not going to change your mind here.
I would like to thank you for this conversation!

No I mean it, sometimes one bank / institution offers a significantly different price to other banks / institutions and hence bid and ask prices are actually reversed. It is very rare, but does occur and is the beauty of ECN trading.

I was thinking the exact same thing.
But read my text that I uploaded.


END of Thread.

Check this out guys.
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I don't understand how you can't see it...
I think the reason you are confused about it is, that many brokers who have 'called' themselves ECN are not actually ECN, such as ODL.




Market Maker Brokers - characteristics

For trade execution a trader has access to the Market Makers Brokers own funds ONLY up to 250 million MAXIMUM (for the biggest market maker)

A trader trades against the broker who is also in charge of the data feed. This means that brokers make money out of you when you lose. Hence have a conflict of interest as stated in their client agreements.

The only money a trader can gain is the money within the broker's own trading funds. This means that you are competing with the broker for the broker's money. You are NOT competing with the banks who are owners of the largest amount of money. So if you are gaining money, the broker must be losing money.... ....unless they trade with you on the real market (ECN) (because the broker has access to the banks for themselves). Good traders have been known to be banned by market maker brokers.

Deal desk (which means broker interference)

Do not charge commission - they have to make their money another way (hedging your losing trades or a hefty mark up on the spread).

Have a feed from 1 institution only that the broker hedges with but you do NOT trade with.

You do NOT get given access to the real data coming from banks. You get access to data coming from the banks through the broker's deal desk to fix and widen the spread.

Hence much wider spreads.

In a quick moving market Market Makers find it hard to hedge or widen their spreads quickly enough, hence they give you slippage (not because of lack of price, but because they will lose money if they get their own trades in quick enough). They do deliberately do this
This type of "technology" does not only occur on MT4, and it has been reported to a number of financial agencies around the globe. Because it is a way for market maker broker to cheat.






ECN - Characteristics

ECN brokers use major bank funds not their own, hence a trader has access to all the funds that banks have (that is normally multiple billions) 1 billion equals 1000 million. This means that your orders are more likely to be executed.

ECN traders trade against other traders and multiple banks, hence broker (who does not hedge) does not benefit from you losing

ECN brokers have No deal desk - this is because the broker has no need to change prices as execution of your trade is performed when another trader / bank accepts your offer.

ECN brokers charge commission for size of trade. This means if you increase your account, you can increase the size of your next trade. Hence the broker makes a greater amount of money from your next trade and therefore has an interest in you being profitable. This means that the ECN broker has no conflict of interest.

With ECNs, spreads will widen significantly during news releases as many banks / traders will withdraw their offers for buying or selling a currency. Hence, if there are fewer offers in the market place then there is no one left in the real market to take (execute) orders. The bigger the news the more likely this is to happen. Hence trading news causes wild swings in price action and is therefore very risky.

Spreads will normally be significantly lower at non-news times. They should be less than 1 pip for USDJPY and EURUSD, and less than 2.5 pip for every other USD pair. You should also see most JPY based pairs for less than 3 pip regularly and GBPJPY less than 4 pip if it is a true ECN broker. Because spreads are lower there is a better chance of execution of your trade. This is why most professional trader are not worried about the commission (as the $ value of the commission is normally the equivalent of about 0.5-1.5 pip).





In the real market there is NO SUCH THING as SLIPPAGE but it should be known by ECN users as price gaps. Price gaps occur when banks / institutions / other traders were either making an offer and then change it significantly (news) or the banks / instituions withdraw their offer leaving only some traders offers available. Banks withdraw their offers because they know that reactions to news can signifcantly affect their own profits. This leaves only a few offers on the table available for trade execution. Hence this is why trading news (esp the minute of news release) is very risky.

Fewer offers available causes prices to swing and jump wildly as the next price available for trade execution may be 20 points away.


Have a read of this:
or watch the second video here:

Other stuff

Here is one ECN that would confuse people because they have minimum spread and in true ECN that would never be the case also they have a minimum spread (typical or market makers) and a commission. The worst of both the ECN and Market Maker worlds.

The only negatives for an ECN is that many brokers call themselves an ECN because they have one data feed from one bank. Some brokers have called themselves an ECN and put simply the aren't. ODL in the past claimed to be an ECN, however, MT4 did not have any bridges to an ECN environment until the last 6 months, so they cannot have been a true ECN. They might be a true ECN now but only upon request.

A true ECN will have a data feed from multiple organisations not just one, and by the way FXCM are trying to be considered an ECN, hence their lower spreads.

It is actually only the market maker retail brokers that benefit when we lose.

With a retail market maker:

You deposit money into their accounts.

The broker then trades with this money in the real ECN market (not his own little market).

You trade fixed data (spreads are widened) (your brokers commission).

A fixed wider spread also reduces your ability for a trade to be completed, because the price has to move further.

When you place a trade, the price that you are wanting for trade completion must be available from another trader or the broker.

If you take a profit, the money that you gained was somebody else that had also deposited money with the market maker retail broker.

Now if you withdraw your money from the broker then you are withdrawing money that broker has to trade with on the real ECN market.

You made money... ...the broker loses money.

This is the precise reason why some traders have problems in withdrawing money in the countries where financial regulations are poor. Because the broker knows they have less finance to trade with.

This means that if 10000 people withdrew their money from IBFX straight away, IBFX would have a lot of difficulty in finding prices to complete trades.



While with commission based brokers their spreads are not fixed, they earn money from you commission and NOT by trading the market with your money. You pay upfront, so that commissions can be charged, and so that if you do happen to be a trader who loses (85% of us) then the bank, institution or other trader who was successful will get the money. I've realised how crazy it is to be with a retail trader so I'm presently closing out of a few hedged trades with my retail forex maker and going else where.

Hi pal, I see what you saying and greatly appreciate your time!But you should understand that honestly, from the customer’s side, there is no difference between ECN and Regulated Market Maker. In the both types you can get: -1 pip spread-Fast execution-No problems with withdrawals And even more! If you are trading with regulated market maker, in addition to all above you can also get fixed spreads, guaranteed fills on some orders and deposit insurance. Most Market Makers are responsible for any losses caused by their trading platforms troubles and ECN brokers are not.

market maker platforms are RIDICULOUSLY manipulated. - download the atc or mbt and run it alongside your mm platform. also throw a few indi's up there too and you'll be shocked by the smoothing, lagging and delay of price updates vs. the ecn.

that's why I use a mt4 with ecn back end as price watch and charting,

and on top, use market-maker software to place order only,

they cannot fill the price 5 pips away if you use limit order right?

Good idea, I hadn't thought of that as a way of beating so called "slippage".

Because if they slip you the same way as BUY or SELL STOP pending orders it'll work in your favour.