WHAT are we trading on...?

After doing some research i’ve found out that most brokers trade against their clients which means traders are not trading the real currency markets, it’s really frustrating to know that we as traders are actually trading against the house only and not the real market !!!

Can someone tell me WHY we are not trading the real market ? and if we are not trading the real currency market, then WHAT are we trading on anyway…??

maybe the interest rates, or the change in currencies and the percentages.

Interbank is what gives Forex prices and people with large accounts or with an ECN broker have the privilege of trading directly with interbank. Most retail traders deal through market makers that while following interbank prices can still manipulate it enough to cost you dearly. If interbank prices show a move down to 1977.06 but a market maker has 1000 stop losses from their traders at 1.976.99 they can move the price down those extra 7 pips to take those guys out.

They make the market and move the price based on interbank feeds but they have the power to manipulate the price too.

You should chat with the bigger US brokers. Most DO NOT trade against their clients’ orders. They will usually confirm this. Instead they:

[li]Offset client orders with one another. This usually will cover 60-70% orders.
[li]Offset remaining orders with the interbank in bulk. The only reason retail brokers that can do this are the BIG ones because you need to have enough client orders to aggregate.


If that is your main cause of complaint, then choose a broker that doesnt hedge against you.
saxobank for instance. Just make sure they are regulated by the country you are in.

Finally whether your trades are placed in the “real currency market” or not, if you have a system that works then you will still make money.

Spreadbets in the UK work in a similar fashion, and there are plenty that make a living from it!


I have to shake my head every time I hear a trader talk about forex brokers trading against their clients.

Yes. They take the other side of your trade. That’s call market making. It happens in every market. Who do you think is on the other side of your trade in stocks, futures, or options? Chances are, it’s a market maker. In some cases, that market maker is your brokerage firm (especially in OTC trading). Does that mean they are trading against you?

No, it doesn’t. It just means they are taking your trade with the expectation that they will also be taking an offsetting trade from someone else so they can make their spread (though if the market is moving quickly, they could lose money by not being able to do that offset at a profitable rate, which is why you can see spreads widen in high volatility periods). They are not in the business of holding positions, so if all the customer trades aren’t balanced, they will go in to the market and offset whatever exposure they have remaining.

To make it more clear, let’s assume you are the only customer your broker has. If you buy 100,000 EUR/USD, and your broker acts as market maker, they now have a liability (a short position) of 100,000 EUR/USD. They don’t want that because it exposes them to risk, so they go in to the market and buy 100,000 EUR/USD to offset. Now your position and the broker’s positon match.

Now imagine that done a thousand times across all customers. Many positions will offset, so the broker doesn’t have to hedge all the positions in the market, but where they don’t match up they will. That means the broker will have the same net position in the market as their customers, but because they have the offsetting liability to those customers, their exposure will be neutralized.

It all comes down to one thing - trade volume. Brokers want people to do trades because that’s where the money is for them. In stocks and futures that means commissions. In forex (in most cases) that means spreads. Just like your stock broker isn’t exposing themself to the risk of having a position in the markets, neither is your forex broker.