Thanks for your explanation.would you please tell me, who pays traders when they are profitable, is it the brokers or the market. I knew the money will go through the brokers to the trader , but who in particular give the money ? Is the brokers middle men or thery are the real payer ?
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Hi,
This is a question of legality. When you open a brokerage account to be able to trade, your legal contract is with the broker with whom you signed a legal agreement. So your broker needs to pay your trade profit into your brokerage account when you win a trade, and the broker also needs to deduct money from your brokerage account when you lose a trade.
Think about buying a car. When you take finance on a car you sign an agreement with the finance provider, not with the car dealer or the car manufacturer. If you don’t keep up your payments it is the finance company that sends the bailiff to repossess your car, not the car dealer you bought it from or the company that manufactured it.
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What I think you’re getting at is the flow of money. It’s you against all the other billions of market traders with your broker and theirs being a middle man where the money flows to and from…
For example, you’re playing a game of poker with a few rich mates, and are hiring a dealer who all of you pay for the services for him/her to manage the bets, dealing the cards and paying it out to the winner(s).
To add, some brokers - who I would avoid - act as your opponent as it’s most likely you’ll lose money. In which case they take the risk, not the market players.
A good regulated broker keeps client money seperate from their own funds in regulated Banks. That is an essential choice
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Which broker do you use ?
I use two. IC markets and Pepperstone. Both are reputable and regulated. Both offer MT5, my preferred platform.
This question haunted me so many months.
You bought something at one price and you sell it higher, you make money, but that does not come from somebody else’s pocket.
It is the broker getting profits from losers and giving it to the so-called winners who will lose sooner or later.
I was of the belief that brokers pass your deals to banks. No that is not true. It is you and them. Some deny that they are market makers but they lie. They are all market makers trading against you. They have distorted the definitions and possibly trade with a bank eventually for themselves to pretend they are collecting all deals into one lump deal with a bank.
Thank you mate
Your writeup here is highly respected, I have not trade before but I’m trying to gather as much information as possible. Do you trade ? If yes, how do you manage brokers ?
yes I trade intermittently since 2015. Big win in first 3 months followed by terrible losses…stayed away then came back with fear, slow, small deals but I am stuck now again waiting for an escape. The meaning of win/loss is hard with FX as you should consider a win if you got no deals open and stopped for good. It is really a gamble called trade. It is only profitable for brokers who constantly are on the look for new people to trap as losers withdraw. Or may be for big investors who deal directly with banks. I am planning to buy/sell currency for real, keep it home until it goes up…slow but not exposed to market fluctuations.
Have a read. Good stuff in understanding how brokers work.
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