How Your Forex Broker Makes Money? | Forex Factory

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How Your Forex Broker Makes Money?

  • #1
  • First Post: Mar 11, 2010 4:50pm Mar 11, 2010 4:50pm

http://kona.kontera.com/javascript/l...rey_loader.gif


http://www.tradingmarkets.com/forex/...ey-839961.html

The answer will surprise you. The broker makes money from the loosing account.
  • #2
  • Mar 11, 2010 5:06pm Mar 11, 2010 5:06pm
Quoting kingfisher

http://kona.kontera.com/javascript/l...rey_loader.gif


http://www.tradingmarkets.com/forex/...ey-839961.html

The answer will surprise you. The broker makes money from the loosing account.

That doesnt surprise me at all given the shear number of traders that you see in forums who aim for rediculous returns. Most are completely un-informed and think that it is simple to make continual large returns off that penny account. It is only a matter of time (and that time is short) before the broker starts to get some good money.
  • #3
  • Mar 11, 2010 9:51pm Mar 11, 2010 9:51pm
Quoting kingfisher

http://kona.kontera.com/javascript/l...rey_loader.gif


http://www.tradingmarkets.com/forex/...ey-839961.html

The answer will surprise you. The broker makes money from the loosing account.
lol, the usual conspiracy theories, what's next stop-hunting?
  • #4
  • Mar 12, 2010 4:20pm Mar 12, 2010 4:20pm
Quote
lol, the usual conspiracy theories, what's next stop-hunting?

The article says if a trader has lets say $ 7000 account and he looses all of it, then a forex broker has earned all of that money. $ 7000 goes straight in forex broker pocket.

Is that true?

I was under the impression that my FX trading orders of buy and sell are passed to interbank FX markets and we retail traders provide liquidity to interbank FX markets.

But as per article, it suggest it is a forex broker who finances a trader profit and gains a trader losses.

It is scary if thats true. A forex broker will always want maximum people to loose so as to make money.
  • #5
  • Mar 12, 2010 5:07pm Mar 12, 2010 5:07pm
Well as far as i know main profit of most brokers comes from spread. It may sound unbelievable but it's true.
  • #6
  • Mar 12, 2010 5:10pm Mar 12, 2010 5:10pm
Quoting kingfisher
The article says if a trader has lets say $ 7000 account and he looses all of it, then a forex broker has earned all of that money. $ 7000 goes straight in forex broker pocket.

Is that true?

I was under the impression that my FX trading orders of buy and sell are passed to interbank FX markets and we retail traders provide liquidity to interbank FX markets.

But as per article, it suggest it is a forex broker who finances a trader profit and gains a trader losses.

It is scary if thats true. A forex broker will always want maximum people to...
It was probably true in the bad old days when a bucket shop really was a bucket shop, I think marketmakers have got a bit more sophisticated nowadays and there's no need for them to take on excess risk (even a broken clock is right twice a day, lol).

I imagine today's business model is more to do with quoting according to their book, hedging on aggregate, and shading price, there's still truck loads of money for them without any risk, which is why they want you to keep trading rather than go broke! They're playing the long game I guess

But what difference whether the broker pockets the money or it's lost to the market, the bottom line is the average Joe trader loses, just as long as the broker's playing it straight there's not a problem.
  • #7
  • Mar 12, 2010 5:32pm Mar 12, 2010 5:32pm
Only surprise for rookies, all experience traders know it, read the threads of market makers in Broker Discussion:

http://www.forexfactory.com/showthread.php?t=5809
http://www.forexfactory.com/showthread.php?t=8046

If you are a profitable trader, at the beginning the broker lose money with you if can't hedge your trades with another client, so then, the reliable brokers send your orders to interbank market, but there are brokers that suspend your account or don't let you to withdraw your profits, be aware, there are a lot of scam brokers out there disguised of honest brokers.
  • #8
  • Last Post: Mar 12, 2010 5:34pm Mar 12, 2010 5:34pm
Quoting Trad3r
but there are brokers that suspend your account or don't let you to withdraw your profits
None of the regulated mainstream ones, maybe the Cyprus based shops?

If you're worried about it then trade futures or something....
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