Where do brokers get the money to pay you out? | Forex Factory

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Where do brokers get the money to pay you out?

  • #1
  • First Post: Aug 22, 2009 7:32pm Aug 22, 2009 7:32pm
Let’s take a hypothetical trade. Say you made $5000 on a single trade.

The next day you decided to withdraw the $5000. Where does your broker get the money to pay you?
Do they pay you from the losses from other trades in the same brokerage house?
What if all traders were profitable and decided to withdraw their winnings?
I’m very interested to hear where they actually get their money to pay you.
  • #2
  • Aug 22, 2009 9:35pm Aug 22, 2009 9:35pm
The same as casinos everywhere, different only in numbers. For every dollar played, casinos retain 45% of it. So if you loose, you loose all. But no matter how much money you win, the house gets 45% out of every dollar you won.
  • #3
  • Aug 23, 2009 11:33am Aug 23, 2009 11:33am
Quoting Viper101
Let’s take a hypothetical trade. Say you made $5000 on a single trade.

The next day you decided to withdraw the $5000. Where does your broker get the money to pay you?
Do they pay you from the losses from other trades in the same brokerage house?
What if all traders were profitable and decided to withdraw their winnings?
I’m very interested to hear where they actually get their money to pay you.
Every trade placed with a broker pays a spread of a few pips, right?

When the broker in their turn places the trade in the interbank market, the spread they pay is much lower and as a result the broker keeps this difference as profit.

The spread is what brokers make their money on, and they make a lot of money. They have no problem at all paying you those 5000$.

The idea that all traders could be profitable is wrong, since there would then be no losers to take the other side of the trades.
Forex is a zero sum game, and if you add the spread into it, it actually becomes a negative sum game.
For every winner there must be a loser, such is the nature of trading forex.
  • #4
  • Sep 1, 2009 12:01pm Sep 1, 2009 12:01pm
I think this question was not clearly stated and not answered as maybe it should have been...here's what I would respond; provided you were up "X" number of pips and converted to currency and deposited to your account, it seems the Currency Market (Forex) has made a deposit to your account. The money comes to you via the Forex Market.
Is this not true...? When a loss occurs, my broker does not keep that amount, he pays the market.
As for how a broker is paid, the amount of the spread goes to the broker whenever you place a trade...this is why you are always down 'x' number of $$ when the trade is first opened.
  • #5
  • Sep 2, 2009 1:19am Sep 2, 2009 1:19am
Firstly, whenever you place a trade there's a spread or broker's cut, that's how they make money.
Secondly, brokers try to balance their trades thus they prefer when buyers and sellers balance otherwise they go on stock market and hedge their position, so no matter if you lose or win they still keep their commission.
  • #6
  • Sep 2, 2009 1:49am Sep 2, 2009 1:49am
http://www.forexfactory.com/showthread.php?t=183517
In this beginners guide is a video, where i discuss in part your question with a video, IN THE LAST COUPLE OF POST,IN THE BEGINNING OF THIS VIDEO
from BRIAN
  • #7
  • Sep 2, 2009 1:53am Sep 2, 2009 1:53am
i thought i may share this VIDEO with you , ive now opened another 3 live new accounts , so on one small live account , i show how i use THE swap rate interest payment time for scalpe using circle trading
HH LL AND POSITION AVERAGING IN A PRACTICAL EASY TO UNDERSTAND VIDEO

for new commers i strongly urge you to test in demo mode first

as this use of swap rate times require a very good understanding, i advise you test with mini position size, till you can make a perfect hit rate over 3 mnths every time

im using now the power of compounding , through multi brokers eg 25 pips over 7 brokers becomes =175 pips



swap_rate_compound_trading.avi

http://rapidshare.com/files/27448748...nd_trading.avi

I HOPE YOU ENJOY THIS VIDEO

FROM BRIAN
  • #8
  • Sep 2, 2009 2:49am Sep 2, 2009 2:49am
Quoting Viper101
Let’s take a hypothetical trade. Say you made $5000 on a single trade.

The next day you decided to withdraw the $5000. Where does your broker get the money to pay you?
Do they pay you from the losses from other trades in the same brokerage house?
What if all traders were profitable and decided to withdraw their winnings?
I’m very interested to hear where they actually get their money to pay you.
It totally depends on the type of broker you are trading with.

ECN brokers get the money direct from the market.

Market Makers and STP brokers get it from the market too, but indirectly via hedged netting positions and/or Dealing Desk strategies to cover it. This is why sometimes, a Market Maker may erase a trade as their dealing desk was unable to cover your trade so your money would have to come from client deposits as per the bucketshop model.

Bucketshops pay you from incoming deposits of others, or in other words, "Ponzi" scam. They also delete some profitable trades but thats just because they want keep money in their pockets, or they already spent it on new seat coverings for their BMWs bought with your money.
  • #9
  • Sep 2, 2009 5:49am Sep 2, 2009 5:49am
Quoting oakmonster

Bucketshops pay you from incoming deposits of others, or in other words, "Ponzi" scam.
lol, oh come on!
  • #10
  • Sep 2, 2009 6:32am Sep 2, 2009 6:32am
Quoting oakmonster
It totally depends on the type of broker you are trading with.

ECN brokers get the money direct from the market.

Market Makers and STP brokers get it from the market too, but indirectly via hedged netting positions and/or Dealing Desk strategies to cover it. This is why sometimes, a Market Maker may erase a trade as their dealing desk was unable to cover your trade so your money would have to come from client deposits as per the bucketshop model.

Bucketshops pay you from incoming deposits of others, or in other words, "Ponzi" scam. They...
Hi Oakmonster,

I like the explanation you've given in this post, it makes perfect sense. I am a recent member to FF though I have been viewing the various threads and comments here for the last 18 months. I have a question to ask but am not sure whether this would be the right thread . Could you please point me in the right direction if I am incorrect. Your explanation indicates to me that an ECN broker would be in a better position to pay one should a person want to withdraw some of their earnings. I am new to trading and have been practicing on a demo platform for the last year or so. Do you have any suggestions as to whether there are any honest ECN brokers around whom I could use to trade live. Thanks for your help
  • #11
  • Sep 3, 2009 1:46am Sep 3, 2009 1:46am
http://www.forexfactory.com/showthread.php?t=7484

i think one needs to read the thread above , in my opinion ive been trading live with so many brokers over the years on the forex its incredible to me that so many have problems one has to question and look at your own trading methods before always blaming the broker

in my opinion both ecn and the so called bucket shops have good and bad points , mostly to do with the mt4 feed rates

i have at current 6 live brokers accounts and have no problems with all the brokers i think one has to question ones own trading stlye and how good the brokers feed rates are as an example

some ecn brokers have very hugh data feed spikes ,so your trading should alow for data feed spikes

if you claim its the so called broker maybe you need to look hard at your training method and read the most comprehensive informed brokers study by DARK STAR ON HIS THREAD ABOVE

ponzi scheme , come on lets think before making crazy statements using well know brokers established firms no way but newcommers maybe/


THERES ALWAYS SOMEONE OUT THERE WAITING TO SCAM,

SO USE WELL ESTABLISHED COMPANYS READ THE THREAD LISTED ABOVE

AND HAVE FUN TRADING THE FOREX FIRST DEMO

AS 95% LOSE MONEY TRADING THE FOREX , LEARN TO TRADE SUCCESFULLY FIRST IN DEMO

THIS IS MYOPINION

FROM BRIAN
  • #12
  • Last Post: Nov 28, 2009 6:50am Nov 28, 2009 6:50am
Quoting oakmonster

Bucketshops pay you from incoming deposits of others, or in other words, "Ponzi" scam. They also delete some profitable trades but thats just because they want keep money in their pockets, or they already spent it on new seat coverings for their BMWs bought with your money.
I have been trading for close on 5 years now and never have I had a broker change, delete or manipulate an order. I dont see brokers needs to do so. If you are trading a large account which would be the only thing that may slightly worry them then I couldnt see it happening so why would they with the little people. To be honest the vast majority of traders make mistakes or changes that are detrimental to themselves. I would have to say that this is where the stories come from.

Brokers, no matter how bad they are, are not out to get you. You will give them enough money over time through what ever trading venture you are changing to each week in an effort to avoid loosing more money. Brokers may do some sly things but to manipulate orders that are in play would be fairly risky on there behalf, I would go as far as to say criminal.

But as I say, in 5 years I dont recall once having anything happen to me so I cant really comment to much on that issue.

Razor
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