Really, what exactly is the money flow in forex? I am struggling to understand every aspect of forex and this is the one that troubles me the most.
I am experienced in the poker business and i know that over there money goes from the large pool of losing players to the rake (sites) and to a small pool of winning players. So my first thought is that in the forex market it is the same: money goes from a large pool of losing traders to the spread (brokers) and a small pool of winning traders.
But are there other sources of money besides losing traders? If someone care to explain to me i would mostly appreciate.
I think you will find what you need in this thread. 301 Moved Permanently
Zero-sum game in the search box will give you more answers.
Just as poker it comes from a bunch of suckers losing money, from people like you and large banks.
Not everyone is exchanging currency with the intent of making a profit. Large corporations need to exchange one country’s currency for another all the time in the normal course of doing business.
That is not where the retail traders get their money from…
They are in a nice niche separated from the true market.
This is where money comes from, this is not Forex related, but good to note that all the money that is consolidated ends up in the Forex market eventually.
Money is Made in a multitude of ways but in the sense of capital gains (Increases and decreases in the value of an investment) you will be making money by
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taking advantage of peoples mistakes (I lose money cause I made a bad trade decision where as you forecast the market properly.)
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Big companies make deals to deliver goods at a price, they hedge the deal by shorting or buying a currency pair so that any fluctuations in the value of the currency doesn’t affect the value of their business deal.
Thanks everyone for the responses.
Do you care to elaborate more on this matter?
You could find that in the thread I copied in. Retail traders are not trading on the real market. They are separated and trade against other traders at your broker. So your are not winning money from banks or other institutional traders, but from your fellow traders at your broker. And I am not fully sure about this, but it may be that all retail traders play against each other at the central ECN that your broker is a member off. Perhaps Rhody knows more about that.
Read the thread given.
This does not apply to retail traders.
There are three types of counter-parties in retail forex.
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Other retail traders, whether matched internally in a broker’s books or externally via an ECN or other broker’s book.
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A broker who is acting in a market-making fashion but doesn’t have a balanced book. Depending on the size of the imbalance and the broker’s risk management system, your broker could be you counter-party, or it could be another broker via a hedge your broker has put on.
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A liquidity provider. These are the institutions (generally inter-bank dealers) who provide pricing to brokers. Many brokers just pass your trades through (with a spread adjustment) to these liquidity providers. While legally you may still have the broker as counter-party, effectively it’s one of these institutions, but only to the extent your position hasn’t been matched on the liquidity provider’s books with either another trader or a broker.
In other words, in the majority of cases you effectively have another retail trader on the other side of your position. To the extent that there is an imbalance in the overall positioning of the system (more long than short or vice versa) there will be an institution making up the difference. That can mean a spillover into the inter-bank market - not in terms of counter-parties because of the way retail trading works, but in terms of potentially requiring a liquidity provider to hedge an exposure in that arena.
But isnt it crazy, that in the end, you get the same exact number on the pair, regardless what broker you look at?
This is why there are hidin keys in Forex, and one must find and understand them, and use them properly…