Forex Trading Industry - My Take Most of the forex brokers today are characterized using words such as 'Cheat', 'Scam', ‘Bucket Shop' etc. Well, let me be honest and admit the fact that this is true to some extent. This Forex trading Industry is a mammoth in itself with daily trading volumes of over $4bn. In such a huge market there are bound to be people who try and take undue advantage of the innocent one, the individual who is new to this industry. That, coupled with the fact that this is an OTC (Over the Counter Market) where there is no centralized exchange to regulate forex trading. In such market conditions, it is very easy for people to make money by unfair means such as betting against your trades. But every single forex broker cannot be painted using the same brush as there are brokers who are different than the rest and those who still want to make money the right way. Such 100% genuine forex brokers are very few as their survival is difficult. Let me quote an example, suppose there are two brokers in the industry. One which charges 10$ per round turn per lot as commission and the other who just adds a spread of 1 pip or higher to currency pairs. We use this as a benchmark to judge a broker and end up deciding to go with the forex broker which is charged a commission. Our thought process is that the forex broker who charges, commissions should be fair and honest as he is making money only from the commissions, but that is an incorrect thought process. Now, if you calculate their spread/commission you will notice that both of them charge the same commission of $10 per round turn. But the true difference starts to shine when we consider that fact that – Broker, irrespective of his pricing model has tie ups with large financial institutions and banks, thus whatever trades you make using his platform are directly passed onto the institutions and this guy just gets his commission whether it is $10 or a 1 pip spread. The other guy also charges the same commission rate, but rather than passing on your trades to any bank or financial institutions he decides to trade against you i.e. Whenever you buy he sells and whenever you sell he buys. Thus he is your counterpart who is absorbing all your trades. Now, think about this, for the first guy who is passing all your trades it is very difficult for him to survive because he is only earning commissions and nothing else. He has to meet his expenses, including server costs, legal costs, staff & administration costs etc. However, for the other guy he does earn the same commissions for sure, but he thrives on your losses because it is a global principle in the markets, which says that over 95% of the people lose money over the long term and he takes almost all the money from his loosing clients. It is a same business principle on which a casino is based.
This is the true picture of these markets. It is very difficult for an honest guy to survive and grow. Therefore the next time if you see a broker who is genuinely concerned about your trading and wants to help you become a better trader please do not hesitate to give him a try. He would probably be the needle you were looking for all along in that haystack.