If you cant hedge clients orders, you need them to lose money to make money

[goldylox]

if you cant hedge clients orders, you need them to lose money to make money.
Quote from “Mathew Murphy, FP Markets”

That is nothing new. But for us in retail forex it means the broker is [B]ALWAYS[/B] going to be risking your money. Who’s money are they using to “Hedge clients orders”? They are probably using your capital!

If your broker is one that does move stops, has slow execution, etc… it might be cause for alarm as it may mean they have financial difficulty as they may have lost money trading against your capital and need to cheat you to make it back?

One of the scariest risks is the fact that Brokers borrow, trade & gamble against your deposit capital.
Even though they tell you your money is kept in segregated accounts and it is safe. The truth is they can borrow against this money and use it as security for what ever they want.

I just saw this news article, thought it might be of interest to anyone opening an account in Australia.
CFD market faces regulation - The Business (Australian Broadcasting Corporation)

Australian CFD Forum | CMC Markets

I am not sure if it is just PR or if there is anything in it? I think this is one of the big risks in trading. In fact it is the reason I use multiple brokers. (spread the risk). I do not trust any of them.

[goldylox]

If you didn’t get the point of the post it is this.

Australian CFD Forum basically want

client money cannot be used for any purpose including margin to fund a provider’s hedge
positions with brokers, which is currently allowed by law.

[rhodytrader]

That is nothing new. But for us in retail forex it means the broker is [B]ALWAYS[/B] going to be risking your money. Who’s money are they using to “Hedge clients orders”? They are probably using your capital!

I can’t speak to other places, but US brokers are required to have something like $50mln in capital specifically to protect customers against losses a broker might take from having directional exposure.

And it’s not a question of needing capital to hedge. If the hedge is done correctly (meaning there’s a complete offset) then no capital is required because there’s no risk.

[goldylox]

I can’t speak to other places, but US brokers are required to have something like $50mln in capital specifically to protect customers against losses a broker might take from having directional exposure.

And it’s not a question of needing capital to hedge. If the hedge is done correctly (meaning there’s a complete offset) then no capital is required because there’s no risk.

I am no expert on how brokers work. But I think they do need capital to open the opposite position. (the same capital you would require?)

If US brokers need their own capital that is good. I think that is the point, most brokers use your(everybody’s?) capital to hedge.

MF Global is the classic example. They were leveraging customers capital.

[rhodytrader]

I am no expert on how brokers work. But I think they do need capital to open the opposite position. (the same capital you would require?)

When you’re talking about the inter-bank market from which the brokers are getting their liquidity (read where they hedge) the workings are based on lines of credit. Those obviously require capital to be opened and maintained.

I think that is the point, most brokers use your(everybody’s?) capital to hedge.

MF Global is the classic example. They were leveraging customers capital.

MF Global should not have been using customer funds. It’s against the law. They are, therefore, [I]not[/I] a “classic example” as they are the first time anything like that has ever happened.