Forex financing

Beginner Questions
1

Hi guys,

It has always puzzled me that who funds the signifant leverage available to retail investors such as 1:500

Broker use order book a and b and as far as I understand majority of orders are put through to book b which means they open an opposit trade against you unless they deem you profitable

So on leverage of 1:500, i pay £100 for 1 lot that should cost in excess of 100k. Who is funding this?

If they have 2000k client and each opens a 1 lot trade then they will soon need a significant sum to open thise trades

I know regulators require 1mil in security from broker but that 1 mil is nothing.
Are we saying brokers have access to billions like hedge funds hence why they can fund such crazy amounts ?

2

See, many experts are strictly avoiding leverage as leverage can possess higher trading risks along with higher potential to make larger investment. From my point of view, it is good if you can make investment of your own funds. Yes, if you are confident to make investment of levered funds, you may go for smaller leverage.

3

Thanks but my question was who finances the leverage not whether it is ok to use it or not

4

nobody “finances” it

there isn’t anything to “fund”

when you “trade” forex with leverage like that, no currencies are changing hands at all

there isn’t a real trade taking place in a real market

all you’re doing is betting against a counterparty who settles your bet against them AS IF such a trade had taken place

so there’s actually nothing to “finance”

5

So if i win broker pays me from loss of other clients?

How about pro traders that make 30/40k an hour and mostly right

6

they’re not using leverage and that’s the point

7

Understood but they are still betting right? They are speculating and not buying anything regardless of leverage so who pays their 40k bet win?

8

Where did you read that traders make 30/40k per hour? PER HOUR?!!! Please I need to know them so that I can sign up as their apprentice.

9

Lol

I mean hedge fund or pro traders working for bank

For instance there has been days i have made 4k on a trade , if there is 10x me then who pays it? Loosing bets?

10

no, not right

in contrast to retail forex “traders” (who are betting against a counterparty) they’re in a real market, they’re buying and selling real currencies

just as if one trades $0k-worth of shares, typically they buy from one institution and sell to another

the point you’re missing is very fundamental - it relates to how markets work (in contrast to how betting against counterparties works)

1 Like
11

Thanks

Any article or book you know of which explains this in detail?

12

Great question, it’d be interested too.