Market makers will bankrupt us at the end? | Forex Factory

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Market makers will bankrupt us at the end?

  • #1
  • First Post: Nov 18, 2009 5:19pm Nov 18, 2009 5:19pm
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
  • #2
  • Nov 18, 2009 6:39pm Nov 18, 2009 6:39pm
The only true statement that I know is my P/L statement.
  • #3
  • Nov 18, 2009 7:03pm Nov 18, 2009 7:03pm
That's a very vague statement...

what book?
skype: ststroud. let's talk trading.
  • #4
  • Nov 18, 2009 9:03pm Nov 18, 2009 9:03pm
Quoting efiler
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
I'd say it's just someone's opinion, possibly based on a bad experience. But possibly also based on the need to say something provocative in a book, or to sell you on a certain trading method. They're entitled to their opinions. But they can't see the future any better you or I. I'll take the statement with multiple grains of salt.
  • #5
  • Nov 18, 2009 9:47pm Nov 18, 2009 9:47pm
Selective Forex trading is the name.
  • #6
  • Edited 10:22pm Nov 18, 2009 9:57pm | Edited 10:22pm
Quoting efiler
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
In 2004, former Federal Reserve Chairman Alan Greenspan made the following statement about currency trading in a speech before the Economic Club of New York:

“My experience is that exchange markets have become so efficient that virtually all relevant information is embedded almost instantaneously in exchange rates to the point that anticipating movements in major currencies is rarely possible.

”…Despite extensive efforts on the part of analysts, to my knowledge, no model projecting directional movements in exchange rates is significantly superior to tossing a coin. I am aware that of the thousands who try, some are quite successful. So are winners of coin-tossing contests.

"The seeming ability of a number of banking organizations to make consistent profits from foreign exchange trading likely derives not from their insight into future rate changes but from market making.”

http://www.forexfactory.com/showthread.php?t=197482

Bottom line: If you don't want to toss a coin, you have to understand why, when and how the markets are manipulated.
/ ... clarifying decisions ... /
  • #7
  • Nov 18, 2009 10:47pm Nov 18, 2009 10:47pm
A market maker is simply someone who will buy or sell at a particular price. By a stricter definition they would be somebody capable of moving the market, to some extent.

Most banks could be said to be market makers because they set commercial exchange rates and take commissions . They are also futures market makers so that exporters and importers can hedge their prices.

They are not out to get the retail trader like us. We are relatively worthless anyway.

I don't agree with Alan Greenspan because although banks and governments are the major market makers we know it comes down to fundamentals in the end.
Gone to a better place
  • #8
  • Nov 18, 2009 10:56pm Nov 18, 2009 10:56pm
Quoting efiler
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
What are they waiting for??
The only way to get smarter is by playing a smarter opponent.
  • #9
  • Nov 18, 2009 10:56pm Nov 18, 2009 10:56pm
Quoting smikester
A market maker is simply someone who will buy or sell at a particular price. By a stricter definition they would be somebody capable of moving the market, to some extent.

Most banks could be said to be market makers because they set commercial exchange rates and take commissions . They are also futures market makers so that exporters and importers can hedge their prices.

They are not out to get the retail trader like us. We are relatively worthless anyway.

I don't agree with Alan Greenspan because although banks and governments are the...
"...it comes down to fundamentals in the end."
This is true, if you trade only the weekly charts.
/ ... clarifying decisions ... /
  • #10
  • Nov 19, 2009 6:57pm Nov 19, 2009 6:57pm
Quoting efiler
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
Its not true at all. You can only proves this by gathering more information.
  • #11
  • Nov 23, 2009 8:13am Nov 23, 2009 8:13am
Quoting efiler
A forex book I read says trading with general methods in forex will finally create a disaster for us since market makers will bankrupt us at the end. How do you evaluate this statement.
Market makers get paid to provide liquidity. They clear buy and sell orders and take the bid/ask spread for themselves. In a very liquid market, the spread is extremely small. In a more exotic market it will be larger.

My guess is that the book is referring to the fact that if you start with a small amount of capital and trade frequently, eventually a significant portion of your money will end up getting shaved into spreads or commissions.

It also seems to me that a lot of brokers allow naive traders to employ so much leverage that their positions can easily be wiped out via normal intraday volatility. If you leverage 400:1, you will probably lose everything whether or not the reasoning behind your trade is accurate or even if the market ultimately moves in your favor, because a quarter of a percent move against you is very likely at some point during the trading day.

If you trade intelligently, start out with a reasonable amount of capital and are reasonable with leverage, you should be able to avoid those pitfalls.
  • #12
  • Last Post: Nov 23, 2009 8:53am Nov 23, 2009 8:53am
Quote
Market makers get paid to provide liquidity. They clear buy and sell orders and take the bid/ask spread for themselves. In a very liquid market, the spread is extremely small. In a more exotic market it will be larger.

My guess is that the book is referring to the fact that if you start with a small amount of capital and trade frequently, eventually a significant portion of your money will end up getting shaved into spreads or commissions.

It also seems to me that a lot of brokers allow naive traders to employ so much leverage that their positions...

Wise words. I trade with 400: 1 leverage in eur/usd and the normal intraday volatility has the ability to shut my forex trade shop.

I dont trade that many lots, so always have enough balance in the account to ride out the up and down.
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