Let’s say there’s 5 people who trade forex, stocks or whatever at the same broker. And they make an enormous amount of money. Is it possible for them to bankrupt their broker ? Or are brokers usually covered against bankruptcy ?
How would that happen? The broker makes his money out of spreads and commissions, so whatever traders do doesn’t affect him.
What you are asking in market micro structure finance is called the dealers problem. This is not an issue for brokers today as very few have any market exposure or hold inventory of their own. Most Brokers now opt for simply passing orders to liquidity providers (large banks). You cannot now assume the broker is on the opposite side of your trade anymore. Also currency markets are incredibly liquid so it is unlikely that a broker cannot access liquidity after all he needs to match all buy orders with sell orders and simply won’t offer you a trade if he can’t.
Hope this answers your question.
Well it is possible to make more money than is in circulation… but the question is what are the odds of this happening? And the answer is quite insignificant, hence brokers and banks are willing to take the risk and allow retail forex trading.
Thanks folks.