I am going through the School of Pipsology and learned there are no commissions with forex trading. How then do all these broker, all the companies that advertise here and provide free demo accounts make their money?
They make money on the spread. For example, EUR/USD (1.3145âbidâ 1.4347âaskâ) you see, there are 2 pips different. Either you long or short, they still make money. these type of brokers we called market makers.
ECN brokers, however they do charge commissions. However, they require higher initial deposits compare to market makers due to the lower cost of trading. Hope to answer your question.
Cheers
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Spread, and taking the other side of the trade. Considering most forex traders lose, this works out well for the broker.
Jay
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Brokers also have market makers, which make money from the markets.
There is a pretty good graphic in the School of Pipsology which explains how exactly brokers make money, using the different spreads offered to them by their LPs.
Cheers,
O.
Not noob bashing O⌠really just âboobâ bashing. spammers tryin to hustle a buck today. lucky babypips.
Jay
Thanks all for the info. Perfectly clear now.
Alright:
Time to âclean upâ folks. I see that other thread has been deleted. I have to admit Iâm a BIT surprised. FAR worse things have gone on here!!!
Anyway: Iâm going to delete my posts here. Jay and Oliver1968: I hope you donât think me âout of lineâ but this is a genuine thread so how about you do the same and keep it clean (but of course itâs not my right to ask).
jas0441: thanks for taking all this stuff in the spirit in which it was meant. As I noted: it had nothing to do with you at all. But use âold timersâ here try our best (not even sure WHY but still) to keep new traders from getting âfleecedâ and that other thread was a âfleeceâ for sure.
Iâll delete this post once I hear from Jay and Oliver1968 (the âoff-topicâ posts Iâm referring to by the way).
Regards,
Dale.
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OK. Well. Iâve done my part (and will delete thist post too shortly).
jas0441:
In my next post here I will give you some more information pertinent to your question. It doesnât explain EXACTLY how brokers make money (or maybe it does to some extent) but youâve been given some answers here already anyway.
Regards,
Dale.
P.S. Too bad about the other thread. TechTraderCentral is âback to normalâ and itâs BORING!!! LOL!!!
Hey jas0441.
Here is some ON-TOPIC information for you (taken out of context of the thread the first part of the post may not make sense but read from the heading âDifferent Market Segmentsâ:
Technical Trading Systems at TechTraderCentral - What do you need???
Regards,
Dale.
Okay but what if some big trader wins, I mean if he trade with milions and broker takes other side of bih trade does that mean that brokers lost same amount of money that that trader made? I have one more question if you can help me - if for every buy position must exist sell (and vice versa) how does price go up or down?
The post you referred to dates from 2012 and thatâs the last year Jay posted so I hope you wonât mind me jumping in.
The forex brokers most of us deal with are not buying and selling currency, think of them as accepting bets that exchange rates will rise or fall and charging a spread per bet (and possibly commission) to do so. In order to protect themselves from excessive risk they limit the size of the bets they accept and they adjust the width of their spreads. They also have pre-arranged financial âhedgingâ so that they will not be wiped out when the market moves during the day.
Thank you for answering. Yes they earn from spread and commission but they are too small compared with your potential profit. Do you know answer of second question from my previous post?
EU and UK-based brokers are legally required to publish the percentages of their clients who are losing money at any one time. These figures typically hover around the 75-80% mark, so for every winning trader there are 3 or 4 losers.
Continuity in market prices is primarily a function of the market-makers in the interbank market who always quote a bid and offer regardless of what the customer wants. So, as an example, letâs say the current bid/offer of a certain product is 5-10 then buyers have to pay 10 and sellers receive 5.
But if there are more buyers than sellers then the market-maker sees his 10 offer getting hit all the time ⌠and as a result will change his price to 6-11. And it will continue upwards as long as the buying force is greater than the selling force. But when eventually the bid side is getting hit more by sellers then the market-makers shift their bid/offer downwards.
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I still donât get it. Okay they will change bid and ask price if its needed but if there are must be same amonut of money in buy and sell positions how can price move?
You donât understand my question. Okay we all know that there are mre people who lose than those who win money. But if someone has profit of milions dollars, euros whatever you need so huge losing percentage to compensate that win so that 70-80 % percent isnât enough because most of that people who lose have small acounts.
Think of it this way. You have 10 diamonds that you want to sell and there are a 100 people queuing up wanting to buy them. After selling two diamonds immediately, you realise that all these people are willing to pay even more to get one of the few diamonds available. So you decide to up your price. And again you sell two diamonds immediately, so you again put your price up and again you sell two immediately.
But when you have only two left, you notice that no one is coming to buy them anymore so you drop your price until eventually someone thinks they are now good value and buys them.
Every diamond has only one buyer and seller, but the pressure on price is due to the volume of people who still want to buy and sell. So price is not determined by the actual transaction, price movement is moved by the numbers of people still willing to buy or sell who haven¨t already done so. It is just supply and demand as with any other product that is not price-regulated.
Remember, in the speculative part of money markets, people only buy and sell because they believe price should be somewhere higher or lower than where it is now. You donât buy or sell because you think the price is right! (ignoring other commercial transactions here). And it is uneven pressure of those wanting to profit from their view on where price should be that pushes the price up or down.
It is the same thing with house prices. Each house sale only has one buyer and seller but house prices move according to their availability on the market and the demand for them.
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The brokers who work for private retail traders limit position sizes and free margin so that they donât have to expensively hedge or cover clientsâ positions worth millions or stand the risk to their own bottom line.
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By the way, simply because you donât like my answer do not infer that I donât understand your question. Your question is reasonable but concerns a situation that will never arise in practice. Youâre lucky to get a straight answer at all.
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