Forex brokers are more of a marketing machine than market makers. Forex brokers need a constant stream of new clients to keep making money since most of the new traders dont survive longer than a few months.
Forex brokers spend vast sums of money on advertising to entice new traders. If you go on Google and search any forex related keyword, you will find most of the ads are by forex brokers. Forex brokers give many incentives to you to start trading.
Most popular way used by forex brokers to make you trade more and more and burn your money is to announce monthly Forex Trading Contest. Cash prizes of $2000, $1000 or $500 are announced.
This is like a lottery, only three win. The more you trade in order to win the contest, the more money your broker makes.
Since there is no central exchange to regulate the currency quotes, forex brokers are free to offer any price to clients. Most of the brokers simply add 2 or 3 or even more pips to the interbank market 1 pip or even lower spread, when offering rates to clients.
Just imagine by acting only as middlemen between the interbank market and retail forex trader, forex brokers make risk free profits of 3 to 4 pips on a round trip trade.
There is a practice used by forex brokers called Price Shading. For example, if the broker is convinced that Euro is on an uptrend and its price is going to rise, the broker will shade his price quote slightly higher to take advantage of the likely increase in Euro price.
If the broker sees that many traders have placed stop orders at a certain price level, he will mount a sudden attack to take out all the stop order by momentarily spiking his price feed.
You cant do anything. It was a momentary spike, so small that it only tripped the stop losses.
If you complain, your broker can say there was a sudden large transaction in the interbank market or his feed is faster and reflects the interbank rates better.
Forex brokers spend vast sums of money on advertising to entice new traders. If you go on Google and search any forex related keyword, you will find most of the ads are by forex brokers. Forex brokers give many incentives to you to start trading.
Most popular way used by forex brokers to make you trade more and more and burn your money is to announce monthly Forex Trading Contest. Cash prizes of $2000, $1000 or $500 are announced.
This is like a lottery, only three win. The more you trade in order to win the contest, the more money your broker makes.
Since there is no central exchange to regulate the currency quotes, forex brokers are free to offer any price to clients. Most of the brokers simply add 2 or 3 or even more pips to the interbank market 1 pip or even lower spread, when offering rates to clients.
Just imagine by acting only as middlemen between the interbank market and retail forex trader, forex brokers make risk free profits of 3 to 4 pips on a round trip trade.
There is a practice used by forex brokers called Price Shading. For example, if the broker is convinced that Euro is on an uptrend and its price is going to rise, the broker will shade his price quote slightly higher to take advantage of the likely increase in Euro price.
If the broker sees that many traders have placed stop orders at a certain price level, he will mount a sudden attack to take out all the stop order by momentarily spiking his price feed.
You cant do anything. It was a momentary spike, so small that it only tripped the stop losses.
If you complain, your broker can say there was a sudden large transaction in the interbank market or his feed is faster and reflects the interbank rates better.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in investing, options and forex trading. Discover a revolutionary new broker buster Forex Robot. Read about Semi Automatic Forex Engine.
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