I’m wondering what other people think about this paragraph I found on wikipedia about market makers (I know, not exactly the bastion of knowledge, but it got me thinking).
“In foreign exchange trading, where most deals are conducted Over-the-Counter and are, therefore, completely virtual, the market maker sells to and buys from its clients. Hence, the client’s loss and the spread is the market-maker firm’s profit, which gets thus compensated for the effort of providing liquidity in a competitive market. This extra liquidity reduces transaction costs and therefore facilitates trades for the clients, who would otherwise have to accept a worse price or even not be able to trade at all. Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets.”
Doesn’t that create a huge conflict of interest? If my broker (the market maker) can see my open position, it is in their interest that I loose money and that they make the money. When trading, aren’t I actually fighting against my broker? If I’m making money, my broker is loosing! Just like a casino. What makes matters worse, since my account is with the broker, and they have access to all my account data, they can see my stops and limits. And they loose when I win!! Since they have massive liquidity, they can throw a few million/billion in any direction in order to trigger stops/limits depending on what suits them most! Perhaps a solution is to just include ‘mental stops’. That way I’m not showing the ‘house’ what my limits are. This seems to explain why 95% of traders loose their money!
Does this make any sense? Would love to hear what others have to say on this topic.
This question has been discussed at length on this &
other forums & will be discussed endlessly for some time
to come.
What I would ask you to do is put yourself in the minds of
the market makers. They can see the bank feeds, they get
no spread or very little because of their assets, their pull
in the markets if you like.
To trade with them we need to pay a little extra, hence the
spread. Now they can see all of the sides of the various trades
which are being placed, do you think everybody trades the
same way.
No, so the market maker first matches up all the offsetting
trades, then their computer makes a calculation of which way
they need to trade on the open market, to settle their "book."
A little bit like a small “bookmaker” who may offset any large bets.
As long as the figures give them a healthy profit, which they do
because there are a lot of “mug” punters out there, why should
they have a problem.
Learn to trade, gett a winning system, then slowly move up the
ladder to an ECN, where you too can have small spreads.
95% of the traders lose not because they are stupid, greedy, uninformed, and have no guts but because of the brokers who rigged the market?
Then why are you trading? Go plunk down your cash in that lousy INGDirect savings instead.
There are a ton of miserable analysts on shows like CNBC. They have all the time to run around so called financial networks and run their mouth off which should tell you that they do not make their money in the market. That immediately disqualifies anything they spew off. If you do not trust the brokers, market makers, bankers, etc. Don’t trade!!!
But if you are smart, you will realize, just as the stock daytraders are reaping right now, that all you need to profit are PRICE MOVEMENTS!!! Only people who are suffering are the buy and hold mentality people who have very little cash to start out with. If you can’t plunk down at least $5,000 to open a standard account, don’t bother with FX trading right now. Look at our current financial crisis… it was all created by people who were delusional and greedy. If you cannot afford it, don’t do it!!! And especially if you have bizarre views on the market.
As I am 100% wrong I was awaiting the 100% correct
answer to this question. I wait with bated breath to be educated
further.
So let me get this straight…
95% of the traders lose not because they are stupid, greedy, uninformed, and have no guts but because of the brokers who rigged the market?
Then why are you trading? Go plunk down your cash in that lousy INGDirect savings instead.
There are a ton of miserable analysts on shows like CNBC. They have all the time to run around so called financial networks and run their mouth off which should tell you that they do not make their money in the market. That immediately disqualifies anything they spew off. If you do not trust the brokers, market makers, bankers, etc. Don’t trade!!!
But if you are smart, you will realize, just as the stock daytraders are reaping right now, that all you need to profit are PRICE MOVEMENTS!!! Only people who are suffering are the buy and hold mentality people who have very little cash to start out with. If you can’t plunk down at least $5,000 to open a standard account, don’t bother with FX trading right now. Look at our current financial crisis… it was all created by people who were delusional and greedy. If you cannot afford it, don’t do it!!! And especially if you have bizarre views on the market.