Choosing the Right Forex Broker

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    Retail forex traders may not realize it yet, but one of the many reasons most of them lose money is because their own brokers are actually trading against them. Brokers who generally cater to retail forex traders are mostly the liquidity providers who assume the role of market makers.As such, they provide their customers with both buy and sell quotations on the various currency pairs in their inventory. Under this scheme, these brokers are allowed to be the counter party to the trades entered by their clients through them. It means every dollar lost by their clients goes to them. If this is not a clear case of conflict of interest, I dont know what is.

    It will be wishful thinking to expect that these retail forex brokers will put their clients interest first above their own. It is more logical to expect that they will try to make money not through the usual bid-offer spread (the customary way brokers make money when servicing their clients) but by capitalizing on the trading mistakes of their clients and pocketing their losses.

    Why do you think they offer zero bid-offer spreads in their effort to corner the order flow from retail forex brokers in the first place? Who do you think makes the prices spike to trigger your trading stops and force you out of the market at a loss? Why do you think slippage occurs and bid-offer spread widens during volatile markets? These are but a few of the shenanigans perpetrated by unscrupulous retail forex brokers to squeeze the money out of their clients pockets. The bottom line is retail forex traders enter the market severely handicapped right from the start the very reason why most of them get burned trading the currencies.

    It is not a hopeless case for the retail forex investors, though. They can dump the retail forex brokers and elect to work with an ECN broker instead (ECN stands for electronic communications network). As the name connotes, an ECN broker is one who uses sophisticated electronic technology setups to link small clients with tier 1 liquidity providers composed of the major banks. They dont keep an inventory of currency pairs because they only do order matching channeling orders coming from small clients directly to the major banks. They charge a fee for every transaction processed and thats how they make money.

    Unfortunately, ECN brokers impose a higher initial capital requirement to open an account with them (a minimum of $10.000 initial deposit to start trading). The bulk of the retail forex traders today actually shy away from ECN brokers brokers because of this stiff initial margin requirement. And since retail traders only have minimal capital on hand, they drift towards brokers with whom they can open trading accounts with as low as $50 initial margin requirement. They end up with market makers not realizing that they are getting into a trap where it is impossible to get out unscathed.

    References:http://www.admiralmarkets.com/education/articles/forex-basics,https://en.wikipedia.org/wiki/Foreign_exchange_company

  2. 4
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    A right broker entitles you tobenefitfrom a flexible platform that is designed to include all its functionality, Market Data, Tutorials, and various other tools that would help in your boosting your experiences and learnings all through-out.

  3. 19
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    I know several ECN brokers impose low initial capital requirement to open an account with them, and the best that allow you to trade pairs like dollar in poland and others that has an interesting long-term operative

  4. 1
    Post

    Hi there. Thank you for interesting post. I'm thinking about forex trading and must to learn all about it first. I want to know all about forex market (what is spread, fee, slippage and so on). I heard the best .forex brokerplatform is MT 4/5 (provided by CMC Markets, Saxo Capital, London Capital Group etc). Can you give any advise about best FX broker on your opinion?

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