Brokers, put the fish on the table!

To ALL BROKERS out there!

Few retail wannabe traders and even more experienced ones know how the brokers` "bussiness model" is working.

Ok,ok don`t send me to all pages with all the BS about DMA,STP, ECN ,and tell me
what happens with my 1000 USD as soon as it reaches account at broker and I place a trade.

Please don`t spare us all the details step by step and specially about how YOU make your Money.
And please don`t try to make it easy for you with steretype answers,do not forget that people at FF
are good at mathematics,computing,economic sciences and so on.

What are your best arguments and proves
that your are NOT chasing MY Money and why are you so happy for me when I earn those millions in trading.


How "leveraged" Money REALLY work?Why you call it trading currency when in fact we are trading CFDs on currency?
And how can it be DIRECT access to THE MONEY with a leveraged derived Product?

If you manage to describe in the deepest detail how your brokerage bussiness works maybe we find answers to ALL
questions regarding trading Forex not only to the few presented above.


Now who is the first broker to take this challenge ?

P.S.It goes without saying that fellow traders are welcome to put their own questions in this
thread and Make brokers to show that fish and broke naked!

Why you call it trading currency when in fact we are trading CFDs on currency? And how can it be DIRECT access to THE MONEY with a leveraged derived Product? If you manage to describe in the deepest detail how your brokerage bussiness works maybe we find answers to ALL questions regarding trading Forex


Saying that we are trading CFDs on currencies is a very interesting way to describe the FX markets. I never thought of it that way. I like seeing things from different perspective and this is very interesting. I had a conversation this very evening stating that few traders really understand the liquidity structure of the entire FX market. It is actually not as liquid and as big as hype makes it out to be. Who exactly is the counterparty for every trade? The broker, the prime of prime broker or the top banks? Please share more, Webcom...I am learning! PS: DMA, STP, ECN, means nothing, IMO to me. Anytime I choose a broker, I want to know, are you warehousing my trades internally (are my profits your losses and vice versa) or are you passing them on to a bigger pool of liquidity and just collecting commissions/spreads?

I have many questions, few answers!

PS: I have always wondered. Do the top 10 banks provide liquidity for binary options?

LOL, the major problem I see with the retail FX market is that only very recently have regulators of reputable countries (FSA, CFTC, JFSA etc.) have actually caught up and started to figure out how this market works. So for a long long time, you get these scam artist brokers that fleece people out of their hard earned money and screw it up for everyone else. Most of the major brokers are not scam artists, and most likely you lost money trading with them because you genuinely lost money...

My answer is this:

Basically, retail traders have to connect to middle men (brokers) to access 'liquidity', or somebody to take the other side of your trade. The biggest banks (primary market makers like Citi, Deutsche, UBS etc.) are the ones that supply the lion's share of the liquidity in the wholesale market. For a while, when retail started to boom and all these IPOs happened, primary MMs thought they can tap into the retail market (i.e. DBfx, Citi Pro, RBS MarketIndex etc etc.). They were wrong. Retail traders care for a lot of things that simply don't exist in the professional/institutional space - the market is a completely different beast. Hence almost every major market maker has exited the retail FX market.

What happens to your money at the middle man (broker):

As with all things in life, the answer is 'it depends'...

If you deposit $100, and trade 10K ticket size, no matter where you trade, you get put in a 'book'. Some brokers will put you in a 'B' book, and some in an 'A' book. The crucial thing to understand is this: it is not ALWAYS the case that 'B-Booking' is bad...

The broker's problem is simple: you try to pass on a 10K trade to Deutsche, and they'll come back bitching and complaining about 'processing costs yadi yada'. That size is peanuts, and primary MMs have a big distaste for it.

So, your 10K trade sits in a 'bucket' (hence the term 'bucketshop', which is another conversation altogether). MOST LIKELY, what happens is that some other trader either 'adds' to this bucket (by making a trade in the same direction as yours), or substracts from the bucket (by going contrary to you). If the first scenario, that bucket keeps adding up until some threshold is reached (1-10M, depending on broker's risk appetite), and then it gets hedged out with an LP. Any FX movements in that time either are a profit or loss to the broker - it helps that they have a spread cushion, that increases their odds significantly, and that if you're a 'good' trader, you're likely trading decent size and they'll take you out of this set up and put you on back-to-back hedging.

Contrary to most trader's belief, the reputable guys do not manipulate the price just so your measly little 10K trade gets 'stopped out'...

To understand why, consider the following: You have a 10K trade with stop loss X. I have an opposite 10K trade with take profit at X as well. They manipulate the price to hit your stop loss, they'll likely hit my TP as well...now, they can widen the spread to ensure that they don't hit any TPs, but still, your measly 10K trade is making them peanuts. You need to consider the big picture - if you're trading with a tier 1 broker, there are hundreds of trades sitting in their 'book' at any given time. Just because you have a 10K long open, DOES NOT MEAN that the broker has a 10K short exposure at that time. Understand? Good.

In an ideal world, the broker hopes that your 10K trade is offset by another trade in the opposite direction before the FX price crosses the spread boundary. If that happens, brokers are having a party, because they make a nice chunk on both trades. A lot of the time, the retail trader will lose money, so the broker will make what you lose (again, THIS IS NOT NECESSARILY BAD).

For the guys who make money, the decision becomes the following: is their trading pattern adding 'liquidity to the book' (i.e. statistically, do they flatten out the position of the A book and 'net off' with another losing trader)? If so, then they stay in that book. If not, then they get put in another book that has lower hedge barriers so the broker can offload the trade as soon as possible.

Clear as mud.

Primary MMs not wanting small tickets because of backoffice processing costs may have been the case 5 years ago. Nowadays virtually everyone uses Traiana Netlink to aggregate trades and compress ticket numbers by orders of magnitudes, so its a non-factor today. A retail broker can STP small trades w/o problem, if they so choose.

But i agree, 99% of losses are the result of inept trading rather than percieved scams..

Traiana Netlink is a solution to reduce the operating burden on a give up - i.e. it will compress and net trades at give up time (so, if I went out and hedged 100 10K long trades with one LP in a certain timeframe, I will only give up a 1M trade to my PB and LP).

Basically, it solves one part of the LPs problem, which is all the processing fees of smaller transactions when a PB is involved.

But, they still have to 'execute' (i.e. accept multiple 10K trades) on the hedge, which still, to this day, pisses them off (I know, hard to believe, since most retail platforms have almost 0 cost for an incremental trade).

Thank you all for your input.

It is a little sad though, that in the general perception one has to have lost money
in Forex in order to be inquisitive about a financial activity that is NOT centralized
and ptactically NOT regulated.

I met the same perceptions on other forums, even more vehement like "to many questions,
just put 50 USD at Oanda and begin trading".This is not an option of course.I rather bet 50 dollars
at the lottery, there are better odds than opening a 50usd Forex account.

Still no broker representative is here to show its Bussiness Model.
Fish still there, under the table in that straw basket flies buzzing around.

What I mean with this thread is that one should not and must not open
a Live account without making sure that all the process is fairly transparent.And inquires are more than legitimate.

Think of any other Money transaction you`re performing in your everyday Life,
paying bills, handling your e-bank, buying stocks and Mutual funds. All of these
feel and is safe and controlable most of the time.

Are we able to say the same about Forex?The answer is a strong NO!
NB:i I am not refering to the risk grade you are taking in each market mentioned above!

I begin with the smoothest and most seamless part of the process:

1) I open a Live account (never done that) Can not be that difficult.Some Xerox copies and photo.OK

2) I take my credit card and transfer Money to...where to... btw...?

All I see is a trading platform with an Account Number and an Equity= amount of Money to trade with.
The broker is not a Bank, its not like transfering Money to your Regular Bank.So where is my Money now?

If my Money is now in brokers account we have a problem. Not being a bank I dont see how they can hold other people accounts.

Is it at a partners bank? Ok fine which one?Is the Acc No the one I see on my platform? Is it directly coupled to the partner bank?Are changes
due to trading activity reflecting in that particular Acc in real time?Brokers talk about segregated accounts.How segregated?

3)Detailed Money flow ...see also my first post.How leverage works ,Money in the marketplace are 1:1 isn`t it?Ìn fact aren`n we trading CFDs?How trade CFDs on ECN,DMA etc...If orders are agregated please develop the proces of agregation takingg into account different entry and exit Points....
4)...
.
.
.n)

The money is segregated at banks with which the broker has a contract. We are not trading CFDs on Forex. We are trading spot Forex. Do you know the definition of a CFD contract?

Somewere in the woods...sorry for that.That is what brokers say but at what bank and what account?After payment to broker,it is exactly like giving your Money to somebody you just met who promises you to put it at a bank of his choice! Presenting no confirmation for that. Or. putting the Money in a trading pool like Swiss Market Place of Dukascopy, a very cryptic sintagm but at least honest:your Money is my Money now,if you lose its ok if you win maybe, maybe you take Another traders Money.


There are minor differences between CFD and spot Forex, not relevant in the disscusion.I was refering at the basic mecanism of the two.Sorry but maybe I did not made my Point clear.Its a Contract For Difference that we are trading in both cases.We are not buying 100.000EUR and Selling 100.00USD.In other Words we are not trading currencies, weare speculating on the difference.

We trade the difference in PIPS between the value at closing the trade and opening the trade.In that case how the aleged STP,DMA,ECN with Connection to 1:1 Money is working?

Many of us have a good idea of how it works but why no broker comes with a transparent description of the moneyflow and all the processes around?
Describe how the agregation really works,FXCM had some time ago a vague description.

I am waiting on your answer. What is a CFD contract
From what I know most of the real players trade Spot Forex. That is really the way to go.....As far as I know

[quote=webcom;8363241]{quote} We are not trading currencies, we are speculating on the difference. We trade the difference in PIPS between the value at closing the trade and opening the trade.In that case how the alleged STP,DMA,ECN with Connection to 1:1 ]

So we see the "Devil" who is going to take us to the Promise Land?

Should we stop trading NOW?

What

Simply -

Market Maker brokers make money from spreads and your losses. If you trade with a MM broker you're not in the real forex world but the brokers made up forex world. They have to take a position against you. If you win, they lose. If you lose, they win.

ECN brokers don't make money from your losses or gain from your wins. They charge a upfront fee when you trade (a few dollars per 1 lot). Spreads are also a lot smaler and sometimes nil because they're passing your trades to the real forex world with liquidity partners.

A note on stop hunting - This happens and I've experienced this myself with a well known MM broker - I saw a candle price go down on the chart to where all the stops would be on a particular buy set up (and where mine was). Price went down, took out stops, then went back up. Then the spike down just disappeared from the charts. MM Brokers can do this because they control the price.

They are obligated by the law and by the regulator. And sure they are just gonna give the account numbers where they hold your money to anyone who asks them. I don't think so. Try ringing up their regulator and see if you have the right to ask them to tell you what bank they use and the account numbers ..

We are buying 100.000 EUR and selling 100.000 USD but leveraged. In order to ask for physical delivery you need pay the whole lot. If not your account balance is settled accordingly. Credited or Debited.

http://fxtrade.oanda.co.uk/learn/int...s/spot-trading

Contracts For Difference are derivative products which track the price of the underlying like options for example. CFDs are meant for trading Indices, Futures and Equities because those are contracts. In markets where there is a difficulty opening a short position such as in equities using CFDs or other market derivatives such as SSF (Single Stock Futures) you can open a short position without the implications of owning the physical stock or needing to borrow it. The difference between CFDs and other derivative products are that the CFDs are traded on the OTC (Over the Counter) market, where there is no centralized exchange. Trading the CFD your broker takes the other side and hedges the risk on the exchange of the underlying. Go to a Futures exchange and take a look at a current futures price for example SP500 and look at that same price on your platform. You'll see a discrepancy of a point or two. That is because your broker included his profit into spread. Essentially trading CFDs on Futures and Indices is more expensive than trading them directly on the exchange.

Hello Merquise,

I really appreciate you take your time to bring some clarity in this grey-zone bussiness which imo retail Forex
is. Thank you!

Aha,leveraged you said and how exactly this leveraged Money works, specially when it goes directly to the Market Place via
STP,DMA,ECN ?

And I maintain my assertion that "We are NOT buying 100.000EUR and Selling 100.00USD".

As I said before we are speculating on the difference in price.We trade FOREX as CFD.I agree that as an instrument
CFD is a different but very similar one.I know the "definitions" well. It`s not me the one who needs "clarifications" like "common knowledge" in
Forex.

It is the duty of BROKERS to be open with their bussiness model.

The only and only way leveraged "spot Forex" can work and is conditioned by is the existence of the Community of traders.
We just move the Money from one to Another,heavily peeled by Brokers.

Imo there is no Forex trading in what we are doing.
Tier 1, Tier 2, prime brokers, capitalized partner Banks and so on are for the rare occasions, if any, when Tarders Money Pool has a
negative balance sheat but, belive you me, brokers find creative ways to never get there. NOTHING WRONG in this model if honestly conducted.

Ok, this is how I understood things through digging and reading various material on leveraged trading as a whole. In leveraged trading you are the one who only pay for margin requirement to open a position in some market. But since you need to pay the full amount for that positions contract, for example you need to pay 100 000 EUR to open a 1 lot position on EURUSD, someone be it your own broker or other market participants, maybe even LP, are lending you that money.

So for example I am your broker offering ECN, STP, DMA model. You open the account and I give you 1:100 leverage. You deposit 1 000$ on that account and open 1 lot position on USDJPY. Now what happens is that I take your 1 000$ as a collateral and lend you my own 100 000$. Then I forward your 100 000$ to my LP and his system there finds you the counter party. Since you only have 1 000$ I limit your position through margin call to 20%. Essentially if the market goes against you by 80 pips or 800$ I immediately liquidate your position through my LP thus returning my 99 200$ to me and removing 800$ from your own account, therefore I get my 100 000$ back and you get what's left, 200$. My profit here is either through spread or commision, so at the end you might get even less back, like maybe 190$ if my commision is 10$ for a round trip.

Yes that's right, PB's operate on a Net Open Position fashion and not on a position vs position.

If one is long 1m of Euros and one is short 1 m of Euros, the NoP is in fact 0.

@merquise

...and this is the exact what things are supposed to work!But are they?

I`m intrested in the plain "mecanics":

Now I have my 100k (where? in my account? ok, not so important..) which I hand over to broker.
Broker by means of a specialized service places an order to LP.

He is buying 90k with my borrowed 100k.(EUR/USD=1,10). Now i try to figure out what happens next.
Broker let 90k stay at LP. Im in charge via fx-platform to handle the trade.

Market goes with me and EUR/USD=1,20. I stop the trade by Selling my 90k for 110k $.
By the same specialized service broker gets this Money back in his account.He is now 10k richer due to my succesful trade.

But wait a minute...the 10k are NOT his Money because I made a succesful 1000 x10$/pip trade.
Nice and gently he puts 10k into my account.And he takes his100$, happy to have another satisfied customer! (I may be wrong with the 100$ I roughly used
your data x10)

If Market goes against me he is sorry for my loss but takes the same 100$ (It implies I am x10 capitalized)for his services . Isn`t it wonderful?
Now to the math...If 100 traders do the same (active traders/month),broker is out with 10M to win 10k.(0,1 %)
With 100 pips/day volatility my 1000 pips will be realized in 10 Days.Profit for broker 0,1% x3 =0,3% /month.

This gives a return of 3,6% per annum.Not bad but definetlly a long way to go to reach a financial operation`s target!

Once again I thank you all contributing to this thread!
It is allways worthy to stay a while and Think "what am I really doing?",to question "well estabished" notions and conceptions which may prove not so clear as one imagined to be.Why not demand from brokers at least the transparency you get at your regular bank?A step by step presentation of their operations. Dont accept the "everybody knows how it works" until you really get the necessary information.


I AM STILL WAITING FOR BROKERS TO PRESENT THEIR BUSSINES MODEL!

Step by step, with acceptable answers if not even undubitable proves to the question:

WHY ARE YOU SO HAPPY WHEN I AM MAKING THOSE MILLIONS TRADING WITH YOUR COMPANY?

There is direct conflict of interest between traders and brokers that's why retail forex doesn't produce millionaires. Just see this chat that I just had with forex.com:

Please wait for a site operator to respond.
You are now chatting with 'Bryan'
Bryan: Hello Tako, welcome to Client Services. May I have your email address to better assist you?
Tako: Is there conflict of interest between forex.com and its clients? Do you trade against client's trades?
Bryan: We are on the other side of the trade that is correct.
Tako: So if client wins money you lose money?
Bryan: We are still compensated by the spread. I'm sure we have contingencies in place to avoid heavy losses.

There are a lot of stories where brokers close profitable accounts. If you know what you're doing, then trade in stock market. As there is no conflict of interest, stock brokers will never close your account even if you make millions in a day, there will always be a trader on other end.

Hi Nabz,


I definetly agree with you about stock market and that is what I`m trading for now.

I have red hundreds of bad and realy bad stories about brokers, very detailed and upmost credible stories.That is the reason
I was always reluctant to get into Forex.Nevertheless I try with obstination to find a reason why people continue to belive
that it is possible to win in Forex. I am among them, but not ready to go live in today`s shape and forming of Forex.I am convinced that nobody and I mean
nobody is a consistent succesfull trader in" leveraged" Forex. Even the 95%/5% is a well marketed myth.Brokers and their associates are the only Winners.

The only and only reason for retail Forex flaw is that brokers do not have a viable bussiness model like any other bussines model,
and I mean to only supply the middle man service and to be paid for that ,indepentently of the trade`s outcome.

However I strongly belive in a positive development in the future when one can be able to trade Forex the same way as stocks market.
After paper trading for a long time,learning and developing strategies I Think that Forex is by far more interesting that any other type of trading.

I contacted Darwinex, this is their response:

As you can see on our FCA's permissions, we are NOT allowed to trade against our clients (our license is limited as we need to act on a matched principal basis , i.e., we need to pass our customers' trades to the market).

In other words, our license does not allow us to act as market makers, our interests are 100 % aligned with our clients', the more our customers win... the better for us!

I must say their customer support is really amazing!
I emailed them on a sunday (today) and i got a response within 7 minutes!