So I read that brokers hedge against your trades...

from making money

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



Given that you, the forex trader, has a number of advantages, have you ever wondered how your retail forex broker makes money? And why are there so many retail forex brokers out there? After all, forex broker advertisements are everywhere and the competition seems to be very stiff. So how, exactly, does your forex broker make money?
The answer might surprise you. Your forex broker assumes that you will lose money over the long run when you trade. Given that 95% of forex traders lose money, it is a very safe assumption. Every broker has to decide whether a new account will belong to the group (95%) of traders that loses money, or the group (5%) that makes money.
If I gave you a coin and said that it would land on heads 95% of the time, I think you would probably want to keep the coin so that you could use it to win some bets with your friends and 2) always assume the coin would land on heads.
This is precisely what your forex broker does. Every new account is assumed to belong to "group B" - those traders that will lose money. Since 95% of the traders belong in this group, your broker is only too happy to assume that you belong in this group.
After some time, if you have consistently made profits, your broker will re-assign you to "group A" - these are the lucky 5% of traders who consistently make money. After you have joined this group your broker will lump your trades with all of the rest of group A and hedge against your trades. So, for example, if all traders in group A have bought the EUR/USD your broker will place a trade in the interbank forex market to offset any profits group A make on this trade.
Basically, your broker puts up with group A traders but is really interested in gaining group B accounts. This is because if a trader in group B loses $7,000 - that is, he completely blows up his $7,000 account, then the broker gets all of that money. The broker does not make money on the spread; the broker makes money on the losing accounts.
This is also why brokers are constantly advertising for new customers. The brokers need "fresh blood" to keep making money, many of the traders in group B will give up on trading or move to another broker.
So, the next time you see a forex broker advertisement you will know who they are really after.








OK wtf is this crap here? If that is the case here doesn't it mean the broker is there to prevent you from making profit? Is this really true for all brokers?

Well they are private businesses, and like any other businesses, they work within their own predefined and unique business plan so it is safe to say that different brokers can make money in slightly different manners. As long as they provide you with the best possible price and operate under the regulation that they are supposed to, they can make money with whatever way they will deem fit.

ECN brokers claim to not hold the counterpart of their clients orders in their book, they simply match buyers and sellers together and charge a spread and a commission for it. Since they are not betting against anyone and just matching orders from different clients using different liquidity sources in theory they do no need a book A or B.

Market makers can make money with the spread by matching orders together but they can choose (or be forced) to be exposed to the market and then your gain will become their loss. But in the end they cannot cheat their clients individually, it would be way too easy to prove for anyone wanting to sue them (except if your broker operates in some shady jurisdiction and suddenly disappears ...). However it is said that stop hunting is a common activity among Market makers but do not wait for someone in the know to tell you much detailed info about it, those people seem to be pretty secretive about their ways of doing business. But then again to think that one little retail broker will push the price of E/U in one direction in order to hunt the stop of its own little retail clients is ludicrous. To sum it up, no, the broker is not out there to get you as an individual trader, he does not need to because most of the time the market will do the job itself.

PS: the fact that the broker can hedge their exposure to the probable good trades of their successful clients does not prevent you from doing anything, you would not even notice... it just offsets the loss that you would have otherwise make them suffer.

From my experience and it is a long one and i have some relation also in this market .the 5% that wins change consistently so if you are from them today you will be from group B the 95% that lose tomorrow .
traders who win tend to increase there trades number and size with every profit they add so they loss there profits so fast and so big when they inquire a loosing trade .brokers do hedge there traders position when they reach a certain amount or level if they are in substantial degree of winning chance for them they do have analyst team and they do have knowledge of the inter market data because they have liquidity relations and know what orders are in certain levels .a wining trader will not be a problem because he will lose for sure in coming trades .a trader that withdraw is a problem for some brokers as he limit there profit .they don't win your lost money if they hedge the trade in real market as they will have to fulfill there liquidity provider obligation .so in most cases the broker that can survive is the broker that have a good analyst team that can predict what customer position will end like .
best way to really make sure your broker will not ignore your trade and respect it is to take high lots off course with line of a good risk management so the recommended account size always is not less than 5000$ to make you take one lot with 35 pips stop loss you are risking about 5% of your capital it is big but your system should have a good wining ratio.
i don't think that there are scam brokers at all they don't need to scam actually .because as i mentioned being from the 5% group A will end in some time in your course and your position then will be enough to shed out the profit and may be the account .
this why i advice always to use the same trade size for a sizable time until the account is big enough to make your wished withdraw and believe me then your broker will hate you and love you also why this will be in another topic when its time come
all have a nice day

The issue is whether or not your broker manipulates their price stream to you on the basis of limit orders you set for your trades.

Whether they hedge against my trades or not, I don't care, so long as they are not manipulating their prices based on where I might leave my stop loss orders.

So long as you trade liquid pairs, avoid holding highly leveraged positions over weekends, I think it should be easy enough to tell whether one's broker is feeding prices in an honest way. Trade small at first so you don't need to leave a stop loss order at all and see how it goes.

.
NO
Brokers do not hedge against traders to prevent they make money. That assumption is somewhat silly.
They hedge to make money.

In spite that may sound the same, it is not.

None of the suggested concepts are valid or real. Actually with the little understanding shown, if anybody
would open a Broker and try to do these things, would go Broke in the first week of business.

Brokers hedge exactly as Banks do. BTW Big banks are the real market makers.

They do not speculate or hold any trades for more then few ticks. And always between the spreads
of the overall market. The key point to realize is that Brokers do not know the future prices.

It is long to explain but perhaps to understand it, think the Brokers is a trader that scalp the "market".
But they are a scalper with benefits.

Say they hedge against a portion of clients in one tick...if the "market" next tick is in their favor they keep the trade.
But if the market next ticks is Against them, they get out immediately and replace their position with new incoming orders
or by grabbing a stop that is very nearby. So, in a way they come out at breakeven by screwing decimals of pip
from the unlucky ones that wanted to enter or exit the market is that specific moment.

If that portion of traders (not individuals) went into wining 10,20 or whatever pips, does not matter. They didn't lose
as they are long gone of being your counterpart.

J.

PS.. Brokers in essence do "manipulate" prices. Meaning that if they charge you spreads they must quote you with
an "add up" of what the market overall is quoting. But they never wonder off too far. If they do, they would hit with arbitration.