Can a forex broker open their own positions on their brokerage?

Are forex brokers allowed to use their own brokerage to trade positions. And if they are can they trade whatever smount they like by setting margin leverage spread to their own desired settings?

Your question seems to be:

Can a broker enter into a trade in which the broker is both customer and broker?

The short answer is [I]no.[/I]

The broker cannot place a bet with itself, in the same way that you cannot place a bet with yourself.

Here’s a longer answer:

Retail forex brokers [I]trade [B]downstream[/B] with their customers, [/I]

[I]… and they trade [B]upstream[/B] with their liquidity providers.[/I]

Example:

Let’s say you have an account with Oanda. You enter a position, and Oanda automatically has the other side of your position.

[B]You entered on Oanda’s terms.[/B] That is, if you were a buyer, you bought at Oanda’s ASK price; and, if you were a seller, you sold at Oanda’a BID price. You did not have the option of determining those prices, or the spread between them.

If Oanda decides to offset their side of your trade, by trading upstream with one of their banks (liquidity providers), [B]they will do so on the bank’s terms.[/B] That is, Oanda will buy (from the bank) at the bank’s ASK price, or sell (to the bank) at the bank’s BID price. Oanda does not have the option of determining the best available ASK and BID prices from their various liquidity providers. Those prices are offered to Oanda, continuously in real time, on a take-it-or-leave-it basis.

At any time, Oanda can choose the best available ASK price, or the best available BID price, offered by their various liquidity providers. But, Oanda cannot set those prices.

Brokers can trade upstream with their liquidity providers (on the best available ASK or BID price offered by those liquidity providers) to –

(1) offset [I]individual[/I] retail customer positions,

(2) offset [I]aggregated batches[/I] of retail customer positions, or

(3) for their own accounts.

If a broker in the U.S. trades for its own account [I]-- not trading with itself, but trading with one of its banks --[/I] it may do so only with excess capital reserves. The CFTC requires U.S. retail brokers to maintain capital reserves (not counting customer funds) of $20 million or more. (Most countries require brokers to maintain much lower levels of capital reserves.)

In the U.S., any funds (not including customer funds) in excess of $20 million are considered excess capital, and are available for the broker to use as it sees fit: to finance operations, to expand, to invest, or [I]to speculate.[/I]

If a broker chooses to use its own capital (in excess of the CFTC-mandated minimum $20 million) to take naked positions in the currency market by trading upstream with a liquidity provider, those positions are clearly [I]speculations[/I] (bets), not investments.

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