Thanks for the shout out @ForexGump 
We tried to hit the main questions raised in this thread.
Thanks @Forex.com
You might want to review this thread and supply an answer if possible: How the Broker made money between buyer and seller
Youâre mentioned in #29.
Thanks for the excellent post @FOREX.com!
You have clarified many questions that regularly arise here and I would like to re-inforce two of them if I have understood them correctly⌠and ask you two more questions!
[quote=âFOREX.com, post:20, topic:131392â]
Option 1: Your broker can offset your buy orders with the sell orders of their other clients, and offset your sell orders with other buy orders [/quote]
This does not mean that a traderâs position is actually connected directly with another traderâs position as their counterparty. Rather, the broker is still counterparty to both traders in a back-to-back fashion where the brokerâs risk is offset and neutralised. In other words, if you have 1000 long traders with a combined leveraged exposure of usd 10mill and 1000 short traders with the same size exposure you are hedged by risk but you still have a total of 2000 open positions where you are the counterparty. And of course, the composition of the overall blancmange is constantly changing as traders enter and exitâŚ
I doubt your dealing room looks like this as your employees are âmatchingâ buyers with sellers?
The second issue I would like to expand on is the misconception of a broker counterparty as the âenemyâ who is âtrading against meâ
It seems to be a common belief that when the counterparty is oneâs broker then one is pitting oneâs own limited experience and skills in a (usually) losing battle against the brokerâs superior ability as the adversary.
But, in fact, the brokerâs role as counterparty is entirely passive since the trader himself is the only one who decides when to enter, in which direction, and when to exit (excluding margin calls, etc). And, in any case, as @FOREX.com, explains, the broker will/may have already hedged his exposure risk away anyway and it is irrelevant, from the brokerâs P/L perspective which individual traders profit and which lose on a trade.
The Newbie is not in a face-off duel with their broker regarding who is the better traderâŚ
But I would like ask how do brokers decide their spread policy? How are spreads managed - is it an automated or manual process? and is it determined by client type, position size and/or market volatility?
My second question relates to your option 2. How do brokers actually âtradeâ with their liquidity providers? Do you have the same leverage/margin basis with each of them as we do with you? And if you take a position with Bank A and an opposite position with Bank B do you have to unwind the net exposure with each bank separately or is there some form of clearing house for this? This is not relevant to our positions with you, the broker, but I am just interested how this works on the broker/LP interface.
Many thanks!
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[quote=âManxx, post:23, topic:131392, full:trueâ].
Many thanks!
[/quote]
You as a former institutional should know of these things i believe?
it is intersting to read forex.comâs explanations.
however, not claiming some things he wrote are wrong, but claiming some things are missleading when it comes to counterparty brokers.
The matter is quite deep, but if you want to know exactly how brokers operate (real and counterparty brokers) you can start researching the series 7 license requirements.
http://www.finra.org/industry/series7
The next step is the series 52 license.
it is the licenses which every broker must obtain to act as any kind of securities broker in the USA. There is a lot of study material for the licenses online for free and it will give you great insights how the brkerage industry works.
however, it will not benefit you in any way in the field of âtradingâ. it will not give you any knowledge that you can adapt and use in the field of making money by shorting/longing things in the financial world.
The main issue is to become profitable, the rest (like how brokers operate) is knowledge that will come with time by itself. knowing how a broker functions is not essential for successfully operating the financial markets.
No. My institutional experience is entirely interbank and customer transactions involving real funds with settlements -either direct with counterparties or via brokers. I have no experience of this kind of activity where market making is provided to retail forex brokers - that is why I am asking, and because I thought it may be of interest to others to hear a simple explanation of how the broker/LP interface works. We donât need to know, but it is always helpful to have a broad understanding of how our business works.
Hey Manxx. The most relevant info for some of this stuff are the Series 3 and Series 34, just in case you were wondering.
As far as the Market Maker being the counter party.
Series 3 Exam prep
âEvery major futures exchange operates a clearinghouse that acts as the counterparty to all buyers and all sellers.â
So, in reality, you do not connect directly with a seller when you are buying, even in Futures. Your trade is with the âclearinghouseâ. What the clearing house does is it guarantees the âcontractâ and takes the risk of guaranteeing said contract. Also if you look into Market Maker or at the beginning of the NASDAQ, The âAXEâ you will find out some more interesting stuff as far as who makes the market in a particular stock, and who your counterparty is.
This is why I am not in favor of these offshore FOREX Market Makers, there is wayy to much that can go wrong.
The Ever Just Making An Observation VIPER
Thanks RISKonFX. Youâre comments are very kind and my goal is to be as helpful as possible for anyone with questions about FXCM. Forums are anonymous, so you have no idea who you may be dealing with and the validity of the information that person is posting. The exception is, as you mentioned, myself as FXCMâs representative to the community since 2009. Although you didnât join much longer after me 
Regarding our NDD execution model, every order is offset one for one with a liquidity provider. If FXCM had been acting as a market maker on NDD forex execution we would not have suffered more than $200 million dollars in losses during the SNB flash crash. On NDD forex execution, every order is offset one-for-one with a liquidity provider. The trader has a position with FXCM and FXCM has an offsetting position with the liquidity provider. When the trader went into a debit balance that meant FXCM also had a debit balance with the liquidity provider that had to be covered.
Providing the best execution and spreads possible has always been our top priority for traders, and we release the data to back it up. By the way, we continue to be one of the largest brokers. As of our latest metrics release in December, we had 116,000 active accounts and trading volume for the month was $171 billion.
Jason
Incidentally, Saxo bank is the institution that changed the prices at which clientâs trades were executed during the Swiss franc flash spike in 2015. They unloaded all their client risk back on the client and are still battling lawsuits over it. They are a large established bank with lots of history; itâs no guarantee of integrity or fair-dealing.
Iâm beginning to think that once a trader learns to trade well their biggest risk lies with their broker.
Option 3 was 2% of volume, what was it in percentage of total value?
Cheers for the info @clemmo
i wasnât recommending any not well informed enough myself to do thatâŚ
But do you know any Reputable ones just in case i âŚ
Thatâs if your broker really withdraws the deals onto the market, instead of keeping it all in his kitchen. In that case, itâs difficult to prove anything.