Hello!
I’m fairly new at forex. One thing I’ve been wondering about, is why so many brokers are dishonest and are trying to make their clients loose money, using dirty methods like “stop hunting” etc…
My idea of how the broker makes money, is that either the broker takes out a commission on each trade, or they make money on the spread, so it doesn’t really matter to the broker if you win or loose on your trades…
Hope someone can explain this to me.
The number of brokers screwing their customers is far fewer than you might have come to believe by listening to what’s said online.
I understand that some people tends to become a bit paranoid about this issue. Maybe it’s a convenient way to blame your bad trades on the evil broker that’s conspiring against you? I dunno, I don’t have insight into what’s happening behind the scenes of the broker house.
My question remains. What I want to know: Is there a real disadvantage for the brokers when their customers are making money? As far as I understand, they will be making money either way on the spread, and would have no reason to screw you over.
Everything makes sence if you can imagine that the brokers are closed organisations that takes money from their new customers when they open accounts, put those money in something like local bank, and whenever someone wins money they have to get money from their precious bank and give it to him. No one likes to give away money. And such organisation can exists only if losers are more than winners, otherwise the broker’s local bank starts to lose money and finally the broker bankrupt.
I have to say that I don’t know how brokers works (but who knows really?) and this is only my assumption that may not be true. But sounds reasonable to me 
I’m sorry, but your explanation doesn’t sound reasonable at all to me. Only if you have made trades that actually increased the value of your initial deposit, you win money. That profit that you made is the profit made with the money you originally put in the account you have with your broker… The broker is not gonna pay out that profit from their own pocket, they used your money that you put in your account to perform the trade for you, for performing that service for you you are paying them the spread. The broker shouldn’t do more money if you loose. Yet many people are saying that brokers are deliberately sabotaging for their customers, and I want to know what they can gain from that.
It’s like they’re taking care of your money, and when you win, they pay out your own winnings. If you loose, it’s your money that’s lost. The broker wins the spread both when you win and when you loose…
Am I making sense? Can someone explain to me why the broker would like their clients to loose money?
Straight pass through or ECN brokers strictly act as middlemen who execute your trades - like stock brokers do.
Market making or dealing desk brokers act as counterparty to all your trades, as well as to those of every other customer. Their main intention is to have a balanced book whereby all customer longs are matched against other customer shorts. At times there’s an imbalance, though, which they will hedge away if it reaches a certain point based on their risk criteria. So basically it’s technically true that what you gain the broker lose, but in reality your gain comes from someone else in an opposing position to you, as per the zero sum nature of the market.
ok rhodytrader, I do not really understand how this works…
The broker wants balance between longs and shorts between the customers within the broker?
And if there is no balance, ie. more longs then shorts, then they “hedge away?”
Sorry, I don’t understand this at all… Is there something I can read about how this works somewhere?
[B]raybeam[/B], imagine you are a broker. I’m going into your beautiful office and give you $1000. Who owns that money after that happens? I give you paper money, you give me numbers at some account that looks the same as regular demo account, and I most probably lose that money in short period…
Imagine 100 people goes in your beautiful office today, each give yo $1000. At the end of the day you have collected $100.000 real money. And the question is: What happens with these money after midnight???
In my imagination these money are the real broker profit, not the famous spreads. But spreads are good reason to make people to not win, so when they lose their accounts, they will not return to you asking any money - all their money becomes your own. I mean… all $1000 that you initially get from the loser.
But if 100 people give you $100.000 today and after one month 50 of them comes to your office to get $2000 each - you have to give them total $100.000 and you are on 0.
So your hopes and wishes are that losers are always more than winners, and as a matter of fact this is statistically right.
Hello.
This MAY be of help:
Technical Trading Systems at TechTraderCentral - What do you need???
It’s the ‘Different Market Segments’ part that you’re interested in and asking about I think.
If you still are not quite happy with the answers then ask again. Ask until you’re satisfied and understand. Nobody has issues with that at all.
Regards,
Dale.
JDeel, let’s assume 100 people bet $1000, and they all loose. You’re assuming that all that money is never lost on the market and that the broker can keep it all as profit. Are you not forgetting that the broker actually has to bet that $100000 for their clients on the real forexmarket through another actor on the market then? If the money never hits the real market, and only stays within the broker, then it smells like big global scam. I thought there were regulations on the forex market to make sure things work as they should. What you are describing sounds like the greatest scam of all time, that is ongoing, it doesn’t make sense.
I prefer to tell the Forex “Money Game” or “Big Money Game”, or simply “Game”.
I assume that every word coming from the mouths of big institutions is always half true - half lie. Well, maybe full lie that sounds like a full true sometimes. That’s the case with every nation’s governmets as well. And the reason this scheme to always work is that people loves to suffer, loves to hoping, and especially loves to hear beautiful lies. And big bosses all knows that.
So no one ever tells you that the Forex is a big scam if “Chance to win unlimited amounts of money on the biggest market of the world with billions and billions daily turnover” sounds far better.
Looking at the [B]dpaterso[/B]’ s avatar that is actually the logo of one of the big brokers working in my country (located in South… Europe), I assume that he knows very good how brokers works and if they are scam or not.
raybeam, you are right: while JDeel is, I think, pretty good with software (he’s currently building an EA Creator which seems to be quite good, check out his thread in the ‘Rate my Software’ section of this forum) he has apparently not the first idea how retail forex trading works. Don’t pay too much attention to how he thinks brokers act.
In regard to ‘[I]balancing customers’ trades[/I]’ and ‘[I]hedging away[/I]’: Imagine a broker has 10 customers; some will open long EURUSD positions, for example, while others believe the EUR will fall versus the USD and thus open short positions. If the broker is ‘lucky’, of those 10 customers 5 will buy a mini lot of EURUSD, and the other 5 will sell a mini lot … the customers’ trades are now [I]balanced [/I]for the broker: he will match the 5 buy trades against the 5 sell trades internally, and just collect his spread.
If, on the other hand, of the 10 customers 8 go long and only 2 go short, the broker can only match the 2 short trades against 2 of the long ones in-house: he is left with 6 long positions. Let’s say his internal risk criteria allow him to take the opposite position on 3 of those 6 long trades (in-house) … that means he has to ‘hedge away’ the remaining 3 trades (out-house, so to speak). It’s actually quite simple.
Cheers,
O.
I agree that I’m totally blind in broker’s work because I am not a broker. And this is also true for all the traders that “knows” how brokers works reading stuff from internet. The only really true answers can come only from the brokers people and only if they are really truly honest with us.
But I don’t expect such a honesty from someone that holds money in his hands all the time. This is nature afterall - if someone knows how to make money, he will prefer to keep that in secret. And if that secret is important, what answers can he give to others?
Everything is the same as parents-children relationship. What is the father’s answer for the question “Where do babies come from?”
So I’m following the money. And it’s interesting to me what happens with my money after I gave them to the broker. And it’s more interesting what happens with all the money all around the planet from all the people that give their money to their brokers.
I just cannot believe that every cent in Forex is someone’s lose and other’s win. Just because as we know losers are more than winners and I’m pretty sure that loses are bigger than wins if we talk about traders. And if we virtually shrink all the traders arount the world into one trader - he will be loser most probably. And if that is true - who actually wins his loses?
Thanks for the answers, have a better understanding now. I didn’t realize that with some brokers you trade “in-house”!
I think the reason that 90% are loosing on forex is that the 10% that actually do win, they win big, taking a lot of the money from the 90%'ers… But I can only speculate.
lol, no … anybody with some understanding about how business works in general (and I guess having been a Business/Management Consultant for quite a long time qualifies me for that) will know how a broker operates. I’ve never been a banker or an insurance agent either, yet I know exactly how a bank or an insurance company works.
lol again … what secret? There is absolutely nothing ‘secret’ or ‘mythical’ about how forex brokers operate.
The fact that you don’t understand something doesn’t mean and nobody else understands it either.
If the child is old enough to understand, a father will simply say the truth and state the facts.
It’s sad that you cannot believe that, because it’s a simple (and absolutely logical) fact. Where else would the money go? Money doesn’t just disappear: one person’s profit is always somebody else’s loss, in any business in any country.
Read some books about financial and monetary topics, and maybe you’ll understand, too.
Of course more people lose money trading forex than win; maybe the losses of the losers are really bigger than the profit of the winners … but what does that have to do with anything? Every trade needs to sides, a Buyer and a Seller, and the sum will always be zero, no matter if the ‘other side’ is another retail trader, a broker or a bank. Whenever a trader loses money, another trader or institution will show a profit of the exact same amount the loser has lost; that is how every transaction on every market in the world functions … and there is nothing mystical or secret about it, it’s an inherent part of any system (and really not hard to understand).
If you ‘virtually pool’ every trader around the world into one trader/institution, there will be no trade, because nobody would be left to take the opposite site…
If you pooled traders and institutions into at least two traders, then you’d see that whatever one loses, the other one wins (not counting spreads and commissions, of course … net trades only).
Your problem, JDeel, is that you don’t understands how markets work … once you’ve grasped that, you’ll (hopefully) also understand how brokers operate.
Cheers,
O.
Not only with some brokers, but with every broker; unless you place an order of at least some standard lots, brokers will always ‘collect’ your order, together with others, until the posiitions size is large enough to pass on to the market. Even ECN brokers work that way … there is nothing ‘bad’ about it, though. It is simply an issue of having order sizes large enough to be accepted by a broker’s liquidity providers.
No. This assumes that retail traders only trade with other retail traders. Fact is, by far the largest part of retail traders’ losses are booked as profit by institutional traders (banks and other financial institutions such as fonds or insurance companies, who trade for profit, too) or commercial traders (who trade forex to hedge against price movements in, for example, raw materials they need to produce their goods).
In the first section of the ‘School of Pipsology’ you’ll find a graphic depicting the forex market participants; have a look at it, it’ll make you understand.
Cheers,
O.