What I've learned so far

It's refreshing and insightful to have this information delivered in a very informative way!
I'm tuned in!

Yes we want more!

This is a condensed version of episode 7 of season 7 of CNBC's American greed.

It shows you how a MM operates. If you pay attention to the mechanics you will see a real life example of what I explained on those last posts

For the full episode you can go to hulu.com...they have the whole seasons there

It is about ONE WORLD CAPITAL GROUP some seniors here may remember this broker. I personally spoke to a fellow that got pennies for
each dollar he had with them.

I would be careful with trading rooms or groups while your trading. It can lead to too many distractions and you could be taking advice from someone who has no idea what their doing.

My biggest thing I learned in trading over 7+ years of trading. The number of people who think they know how to trade 95% compared to the 5% who actually know how to trade.

I totally agree with you. I also am glad FF did away with the Vouch system as I have learnt that just because you have 10+ Vouches does not make you a real time long term profitable trader. I only ever had one vouch but I am currently on my fourth profitable year.

Cool glad to hear that

We can distil some important information from the documentary posted above.

The FBI agent said that FX global had around 100K in cash but clients liabilities amounted to 20 million.

So thousands and thousand of customers were trading making and losing money and on their Metatrader platform
everything was fine. On their computer screen they still had their accounts with the gain and losses they made trading,while the real cash account with customers money was being drained and getting smaller.

Later in the game after the NFA audition and lots and lots of people asking for redemptions, it was just than that FX Global bookkeeper started to make the platform reflect what was going on in the real clients account. But it was already too late.

It comes to my mind the saying about how the more things change the more they stay the same.

What happens in the middle ages? Everybody knows the story.

Back than people used to store their gold in vaults.

The vault's owner started to noticed that the amount of the gold leaving the vault was pretty small compared with the amount stored.

So one day a clever owner had the idea of "borrowing" a little of the clients gold to personal use and than pay it back later.

Than he realized that he could "borrow" more. Later he got more gold, and more and more.

He started to realize that he could get away with it, so he started to do it as regular business and using other peoples wealth for his own benefit.

Than a war came, or a famine, or any other disruption and people rushed to get their gold. The vault owner left the city and they found barely no gold in it.

The video above is a modern day example of the same thing happening again

Another example?

We recently saw the case of MF Global where John Corzine pretty much did the same.

There was a pile of customers money sitting in a account gathering dust. There was deposits and redemptions but the bulk of the money stayed pretty much constant.

So MF Global had the great idea of putting that money to "good" use.

While the clients money went to cover bets on the Greek economy, on the clients platform all looked ok.

What about REFCO and Peregrine Financial Group ?

They are all contemporary examples of what happened in the past.

Now, in order to trade you need a broker. I myself trade though a broker. there is no way to scape from it.

But I'm not naive enough to think that what I see on my platform terminal is reality.

As long as you understand that you are trading in a virtual reality. That the MARKET you are in is MADE by the MM you are better than 80 or maybe 90% of people which think that what they see in the platform is their money and their order goes to the big banks mixed with the billions big banks trade.

So now that you understand that since every dollar you lose goes directly to the company that provides you the service. Those " glitches" that happens so often start to make sense.

So if MM are not philanthropic companies, in other words, if they are there to make a profit. And if your loss is their direct gain.

I have a hard time believing that their constant disconnections and platform freezing are just a glitch.

That they don't go hunting your stops

That they don't introduce some bigger slippage than what it should be.

The list of trick can go on and on.

Next post I plan to defend a little the MM on some accusations people make ( specially newbies) that in my view are unjust. I also plan to give you some hints on how to work around those problems and maybe have a more civilized coexistence with your broker

So far I spoke on what I learned about the plumbing of a MM.

Now lets talk about traders mindset and what they don't get about brokers.

Ever heard a newbie trader bashing their broker because the spread went to 40 pips.

Thats a point I believe the broker is justified in doing.

As explained above, you trade in a virtual reality, a market made possible to you by the MM.

The only link between you and the real interbank forex market, where the big banks are trading, is the current BID and ASK.

So the current quote is what aligns the market made for you, and the real market

If you want to buy the Euro with your Dollars no MM will charge you 1.60 if the price in the big banks is around 1.36

With small disparities ( especially in 5 digit MM) the price you see in your screen is reality. Well, with rare exceptions.

Those exceptions happen when a flood of orders hit the MM system.

What happens is that there is a record of all transactions happening in the brokers at any given time, and at any giving time the broker HAS TO BE SOLVENT.

If for even one second the broker has more liability than funds this will be kept in the records and they can lose their license.

You always have the majority of traders losing money and very few actually making money so the broker is always solvent by a big margin

But when there is too much volatility in the market (like in the NFP report) the broker loses temporarily their "anchor" to the real forex market because not even the big banks will agree in a price so a quote becomes something almost impossible to get.

It takes seconds for the price discovery to stabilize among the big banks, but during those seconds the MM only connection to something real is interrupted.

And on those precise seconds a avalanche of orders reach the broker system, because everybody is trading

If the MM allows, too many orders can be filled in a price many pips above or below the real price, and since their system can't rely on quotes from the banks
the MM can become insolvent during those seconds or they can lose money paying too many people a price that does not exist or both.

Thats why they use statistical standard deviation to stretch their spreads to safe level.

So if they sell that low and by that high even without a quote they are statistically safe to make money and don't leave a record of insolvency.

So spread widening is a fact of life for traders and I believe it is reasonable tool used by the MM to tame their clients and smooth trading volatility
on their servers.

A secondary problem is that the amount of orders coming is unusual so it can really cause a crash on their servers.

MM are there for profits so they can't keep servers to handle NPR order volume every day of the year.
That would be a waste of money.

I don't know about you but I find it to be also reasonable.

Some people blame the market for not agreeing to their conclusions. Don't be a dork! Blame your broker for other reasons, not about things they do legitimately

Very interesting!

Brokers are also bashed by scalpers.

It is counter intuitive if you believe that the MM makes its money through spreads only. But we debunked this myth already, so lets see the real reason some brokers cut the scalpers short.

Well, scalpers tend to be a pest for MM because they consume resources and their accounts live relatively a long time.

Generally speaking, scalpers bank small profits but they also take small losses, and there resides the problem. Small losses!

Small losses can carry a account for quite a long time

Market Makers want your account in a relative short period. It cost money for them to keep your 300 bucks. You call a few times technical support
and your micro account starts to not compensate anymore.

So they want your account transferred to their account or they want you out. They are in the market to make money not to babysit you.

And by the way they know you will be back with some money soon, so they say " lets blew this account so you can refill it, or you are out "

That is of course not ethical or reasonable, but at the end of the day it is more a matter of choice than a MM imposition.

If your broker does it to you, just get your money and go somewhere else. If you don't have where to go, learn to trade differently.

When do you sleep? insightful!

Very interesting posts here MarginCalled... You are making me wonder how my broker is viewing my account as ive been in the green for four years now. I am not a scalper as I trade daily candles and can be in trades for weeks. Just makes me wonder how they view me.

Keep coming with this info as it is very interesting to know.

Thanks for commenting guys. I'm here to possibly make some friends in the trading area.

I'm not been able to answer your posts individually so far because I'm writing these big posts, but I'm almost done.

Next I will give my view on how to co-exist with your broker more peacefully.

very informative post keep up the good work pal

So how to make your "marriage" with your broker works.

First things first.

How to know if your broker is honest. FX Global, MF Global, Peregrine Captal, REFCO etc are real life examples
of brokers where your account will disappear independently of your trading skills.

The quick answer is that you can't be 100% safe. But you can minimize your odds of being screwed.

First you can diversify brokers. Dividing your account in 3 or 4 parts and opening accounts with 3 or 4 brokers.

That approach raises your chance of finding a MM that will go belly up but drastically minimizes your chance of losing
your whole account. I personally have accounts with multiple brokers.

Trade with big names.The big guys can still go under but a small broker usually belongs to just 1 or 2 guys.
They usually keep all the accounting confidential so the chances of somebody getting too greedy and getting away with it until too late is a lot bigger.

Keep one eye on your MM. I'm always searching the internet for "rumors" on my brokers. I'm always calling their sales people, tech support
or any area I can talk with a human. You will be amaze what insights you can gather.

Email the NFA and CFTC asking if they have something on record about your broker. It does not hurt to ask and something may pop up.


Second:

How to defend yourself from MM tricks

Don't trade on high volatile times. Develop another strategy so you don't depend on news to make money. For the reasons explained above

Don't scalp. Again develop another system, scalper are a target even if the broker says something different.

Bigger stop losses. The MM can and will spike prices around 5 pips. Thats easy money to them. If you complain they will say it is something from
their liquidity providers and good luck trying to prove the contrary around 5 pips. Now 20 and above is more safe.
The broker know they can't spike 20 pips all the time and get away with it.

If possible trade with commission based brokers. Usually professionals trade there. They have bigger accounts
and the broker knows that a collective law suit from this guys has more chance, so you a theoretically safer there.

If possible set up a dual internet connection with 2 different ISP on different computers. MM love to freeze the platform or disconnect you
if you are a intraday trader like me you have to have other ways to access your broker.

One of my brokers used to disconnect me all the time. Very often when price was going against me. So since I deal with
multiple brokers I used to open a position on one of my other brokers to be hedged and wait until the bounce back.
It took a few months but they learned that I would not panic and call them to close the position.

The disconnections stopped !

Third

Accept what you can't change!

Trading is facing RISK. Facing RISK all the time

This market ( any market) is manipulated and in 99.9 % operated by sharks.

If you can't handle it. If you think that they are all angels out there looking after you. Just go do something else.

Do your best to protect yourself, don't be naive, but take responsibility. You are the one to blame if something goes wrong.
because you can always GET OUT. If you decide to stay stop complaining and trade.

If you're really having so much trouble with your "brokers" that you have to devote this much posting/text to it, then you're with the wrong brokers. Seriously, who the hell still trades with brokers where you have to be careful not to scalp? I didn't even know they existed. Defend yourself from their "tricks"? Why not ditch the scam outfit if they're that shitty and go for a legit retail dealer, then you can concentrate on trading instead of fighting the dealer. Truly bizarre!

Thanks for posting.

Where did you get it, that I have problems with my brokers?

I had problems in the past as I wrote above.

As the thread title explains. I'm just writing about stuff that I learned so far in my trading experience.

Some people will benefit from it, some not.

Here is the PDF public files about One World investigation related to the video above.

It starts to get interesting after page 9, very nice reading.

On page 11 you can really see the disparity between what clients saw on their metatrader and their real account

Margin...you are new here and probably not familiar with guys like this Eurotrash.

FF is full of those "senior" members trading in a demo account or giving money to their brokers for so long that they will never have e problem. just ignore these people. i had some threads in the past imploded by these kind of people. Your thread seem to be good for newbies, keep going.

MarginCalled ................ keep going don't stop now ...... this is a learning curve to some of us