Hey guys,
I’ve seen a lot of posts / articles instructing how can you tell if your broker is taking the other side of your position,
Or, as called in many of those posts / articles, is trading against you.
What I couldn’t find, however, is the reason why it is matter.
Some posts / articles mentioned that if the broker is bating against you, he ‘would not like it if you win’.
What do I care what my broker like or don’t like?
Since the spreads are given,
I chose my own take-profit/stop-loss,
And the broker has no affect on the currency price,
Meaning, the broker has zero affect on my position or the outcome of it,
Why does it matter if my broker is taking the other side of my position?
Because simply put: you lose. Broker wins. That’s on a good day and with a reputable broker.
A dishonest broker will use every one of your assumptions made to ENSURE that you lose and they get to keep your money.
Spreads are not given. They are quoted with the stipulation “under normal market conditions”. Spreads can widen at any time. A dishonest broker can use this to their advantage with ease e.g. widen a spread to catch stops.
Without going into minute detail here (you got much studying to do I’m afraid) TP and SL orders are not necessarily executed at the price you stipulate and that under normal market conditions and with a reputable broker. A dishonest broker can take you to the cleaners in a variety of ways by slipping orders, cancelling orders, not executing orders at all, the list goes on.
And I can just hear the retorts coming i.e. ECN and NDD brokers are not on the other side of your trade. Not true. If you think that your’s and every other tiny little retail trade is being sent to one of the big banks then you’re very much mistaken. Again without going into minute detail: only when a broker’s risk or net exposure reaches a certain level do they then hedge such risk with a larger liquidity provider.
So. In summary. With a reputable (which in my opinion is synonymous with registered and regulated in the US or UK or EU) (although buyer beware in the case of the EU i.e. it gets a bit more complicated in the case of the EU) it doesn’t matter. But a dishonest broker will send you to hell and in such a way that you look forward to the trip.
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Appreciate your reply mate.
So, if I understand you correctly (sorry, English is not my native language), the risk is that the broker will basically ignore my stop-loss and take-profit and will ‘stretch’ them as he can, to minimise my winnings or to maximise my losses?
Things like cancelling orders could be easily tracked.
Wouldn’t it open him to a potential legal claim from me?
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Hi.
You understand it all perfectly.
But bear in mind that under “normal market conditions” the same things can happen and it doesn’t necessarily mean that your broker is dishonest. And therein lies the problem i.e. defining “normal market conditions” when there is a dispute.
Cancelling orders could be tracked for sure. But again: an unscrupulous broker will always have a explanation. And in all probability you’ll find they’ve covered themselves in the fine print anyway.
As for a potential claim: you’d have to prove a loss and that may not be too easy to do just given the very nature of this business.
I guess in short: it’s why I bang on about regulation. Better to trade with a broker that is regulated and that actually respects and fears the regulator.
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