How do retail forex brokers lose money when we win?

(QUOTE)I trade with www.efxgroup.com

They are an ECN. THERE IS NO FIXED SPREAD IN FOREX. Tell them THE RUMPLED ONE sent you.

You can google and find out what I really think about "FIXED SPREAD BANDITS".

I'll leave it at that so I don't get banned.

How do I avoid the spread?

I explained this to someone yesterday in an IM.

With EFX you pay a commission rather than having a "FIXED SPREAD".

It's "apples and oranges" so don't try to compare. "THE MATRIX HAS YOU" and you need to "FREE YOUR MIND" to understand what I am about to explain.

Let's say the current bid/ask is 1.5010 x 1.5015

The current spread is 5 pips.

You want to SHORT.

You SHORT at 1.5010.

You set a TP at 1.5005.

Bid/Ask becomes 1.5005 x 1.5009 and the current spread is 4 pips.

At EFX, you will get filled if the bid is 1.5005 and someone TAKES your offer.

Bid/Ask is now 1.5004 x 1.5009 and YOU HAVE YOUR PROFIT.

Note: the ASK never reached 1.5005. THIS IS IMPORTANT!

If you entered this order at a FIXED SPREAD BANDIT, whoops I mean broker, your order is STILL OPEN!!

The bid/ask must become 1.5000 x 1.5005 and your order HITS the Ask.

DO YOU GET IT?

If not, then read this over and over and over again until the LIGHT BULB goes off!!

The day I found out about EFX is the day I opened an account there and stopped trading with FIXED SPREAD BROKERS.

The simplest thing to do is to load up a demo account at EFX Group and see it with your own eyes.

When you place your TP Bid offer at 1.5005, your bid is displayed on Level II.

The point is with EFX your offer gets hit.

With FIXED SPREAD BROKERS you have to wait to hit their offer.

Maybe this might help:

First:

1.5010 x 1.5015

and price drops...

1.5009 x 1.5014

1.5008 x 1.5013

1.5007 x 1.5013

1.5006 x 1.5012

1.5006 x 1.5011

1.5005 x 1.5011 You may get hit

1.5005 x 1.5010 You may get hit

1.5004 x 1.5009 YOU COVERED 5 PIP GROSS PROFIT

AND LET'S CONTINUE

1.5003 x 1.5008

1.5002 x 1.5007

1.5001 x 1.5006

1.5000 x 1.5005 YOUR FIXED SPREAD BROKER FILLS YOUR ORDER(QUOTE)

Could you elaborate on this issue?

this is an old article they used to promote 1 yr ago...

but still barely justifies competitiveness against 1 pip fixed spread no commission pairs...

did anyone find scalp E/U on mbt-f more profitable than oanda??

I just thinks that interactive brokers 0.4pip round trip commission may be better. but I may still start with mbt since they allow smaller start capital.

What this is saying in short is:

Lets assume that ECN brokers have a spread that was consistently approximately the same as an Retail Market Maker but varies only occassionally. As the sell trade spread moves down, the spread comes over the top of the T/P point.
However, because the spread does actually vary, you actually have the chance of your T/P being fulfilled early, because of a temporary price quote from a bank that took your offer. Not everyone sore it, but your offer was taken.

While this cannot happen in a retail market maker, because you don't actually get to see the bank quotes. As a result your trade is less likely to be fulfilled. This is why retail market makers should not be able to even claim slippage. Because the spreads are normally already wider than the real ECN quotes any way.

However, because the spreads are normally less in an ECN brokerage, then this improves your chances even further of having your trades fulfilled.

Hence the important question for an ECN firm is, how many banks and financial institutions are a part of your data feed?

Dear aquaart...I'm interesting to open account in ECN broker. But I want to know their spread at news time release. Is it the spread going wider like Oanda ?

Thanks for your info

Yes spreads definitely widen.

This is not the fault of brokers, what happens is many banks and other institutions pull their offers of buying / selling currency off the market. As a result their are significantly fewer offers available in the market to close trades. Consequently the price swings wildly, filling trades at the closest possible price. (so called slippage)

Hence when we see a large bar at the release of news we often think that all the prices in between were met. That is normally not the case. There really is often a price gap which can't be shown by bars and candles, but only by tick data.

Banks come back into the market 5sec, 15sec, 30sec, 5min after the news release and hence so called "slippage" settles down or another way of putting it is, banks are making more offers at different prices and hence there are fewer price gaps that the price would need to jump for trades to be fulfilled.

efxgroup is MB trading. Same company.

If a broker says that they are ECN styled they really are just a retail market maker broker.


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

A trader trades against the broker who is also in charge of the data feed. This means that brokers makes money out of you when you lose (because they traded in the opposite direction (hedging). Because whilst you trade within their funds ONLY, they are trading the entire market with direct access to the banks and other providers (the broker are ECN for themselves but not for their clients). Hence they have a conflict of interest as stated in their client agreements. Trading in the opposite direction is just a way of them protecting their position from an extravgent loss.

But when you close a position in profit, they need to close a position that they traded as a loss. Hence if they can give you slippage they are decreasing their own losses. Hence it is not in their best interest for everyone of their clients to profit.

The only money a trader within a retail market maker broker can gain to, is the money within the broker's own trading funds. This means that you are competing with the broker for the money that they possess and trade with on the real (ECN) market. 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.

If you make a withdrawal from your broker, they lose the money that you profitted with, because its money being taken out of their funds to trade with.

However, with ECN the broker gains via commission and give you direct access to the banks money. Their commission increases if your trade size increases. Hence it is in their interests for a significant proportion of their clients to profit. Hence the amount of money that your trades can actually be fulfilled with is, the money that the bank is trading with (not just the broker). Who do banks predominantly trade with? Other institutions and other banks, and hence that is the money that you have access to with an ECN broker, not some piddly $253 000 000 (which is the biggest market maker).

Brokers that widen spreads are retail market maker brokers, and you never know how much they are really widening the spreads, until you compare IBFX GBPJPY (9-11 pip plus their slippage because of lack of tick data) with MBTradings GBPJPY (1-8pip normally 2.5-4pip).

Retail market makers know that the wider the spreads are the less chance you have of your trade being completed in a profitable way. Why? because the spread quotes have to travel further for trade to be completed (or less for your trade to recognise a loss).

That alone should be ringing alarm bells that just maybe these brokers don't want people to profit (prosper) through them.

Well brokers actually do trade against you, they watch you initially and if u lose money they trade against you. Another thing is if you use market orders the chances of them trading against you are much higher. They did a survey about clients who use limit orders and market orders and found although both lose the failure rate for clients with market orders is much higher and they tend to take oppositie positions for most of these clients as they have found statistically its almost sure they are going to lose all their money.

Initially I thought it was all bs I didnt know this but then in fxstreet their was a webinar presented by famous trader John Carter (he's been a trader for many decades and has written bookstoo) he mentions this in his presentation. It is actually true brokers do watch you and trade against you depending on how you're faring.

market order slippage, I think this is most easy way for broker to make money

for example spread is 4, open order has 3 pip slippage, close has 3 pip, total is 10.

and using 10x leverage, each trade a trader lose 1% of acc,

and over trading in minute chart for pure random walks...

also if ignore market maker, and your opposite trader is using market order and you use limit order, actually you're profiting 1 pip or so on open and on close from him.

if you've done 10pip scalping thing at 10x leverage it's most obvious, using market order / or limit order for 2 different week, trade by trade there is about 1-2pip profit difference even in a best market maker broker like oanda.... other mt4 bucketship I'd expect to even more.

Very interesting, I have found that my profits have been increasing more consistently since I started doing that. I think I will continue...

does oanda make money when we lose money? and vice versa? or they just make money off the spread regardless the outcome of our trade
or is my question too simplified

yes they do!

but you can dream that you're trading with another trader taking opposite, you lose he win, basically the amount of capital you have don't move the pair by much.

Yes they definitely do.... However, what you need to remember is that with retail market maker brokers, FXCM and Oanda are two of the biggest. GFT is also big. IBFX is small in comparison to these guys. I cannot understand why someone would trade with a small retail market maker broker.

With retail market maker brokers, size does matter. The bigger they are generally the less slippage you will get.

With ECNs pricing, a buyer's request needs to be met by a seller's offer, hence spreads fluctuate. However, a genuine ECN does not partiicpate in the buying and selling (unlike retail market maker brokers). They simply offer the best offers from a range of banks, other institutions and other traders. And they make money via commissions.

These commissions are charged according to the amount you trade, and hence it is the broker's interest for you to trade successfully. Because next time you will be able to trade a larger amount.

In retail market maker customer agreements there is nearly always a clause that states there can be an in built conflict of interest between the broker and its clients. Because when you profit and then withdraw, they lose and they don't like that.