Do Forex Brokers Lose Money?

Category: Broker Guides | Author: Trading Brokers | Date: January 2, 2023

Due to the fact that they enable trades between market participants, brokers play a significant role in the forex market. Given the widespread acceptance of forex, they can make enormous sums of money. Are forex brokers ever losing money and in the red though?

If forex brokers trade against their clients, they can lose money. The spreads they charge for each trade are their primary source of income. As a result, they are not out of pocket because they continue to earn their spreads despite market fluctuations. They lose when the trader wins, though, if they take the opposing side of the trade as market maker broker does.

This post will go into detail on the revenue streams and potential causes of loss for forex brokers. It also includes a list of several brokers who stand to lose money if they trade against their customers.

How do forex brokers make money?

The spread, or the distinction between the ask and bid prices, is the primary source of revenue for forex brokers. In other words, brokers profit on the difference between the selling price of a currency and the price that a trader must pay. Variable fees are offered by some brokers based on market swings and events, while fixed spreads are charged by others.

For instance, the spread will be four pips if you choose to buy or sell EUR/USD at 1.1036, 1.1040, respectively. Pips are units used to measure spreads and minute price changes between currency pairings.

The quantity of orders affects the variable spread fees. The spread increases with order level. As a result, brokers can profit from extreme volatility conditions by widening the spread.

Some brokers may charge commissions for each deal, which is less frequent than spreads. Due to the enormous demand for lower priced services caused by the popularity of forex, there are many no commission forex brokers that only charge spreads.

However, forex brokers also have other options for making money. They consist of:

Leverage: Forex traders that utilize leverage are borrowing money from the broker. Depending on their margin, it enables them to multiply the trade volume by tens and hundreds. Brokers will earn more money as a result of these wider positions since they can raise spreads in tandem with leverage.

Overnight interest rates: Depending on the difference in the exchange rates of the two currencies, traders with long-term positions either pay or get interest rates. Since these swaps are not symmetrical—that is, the interest rate one trader earns is not equal to the rate the other dealer pays—brokers frequently profit from them. There are swap free brokers but they usually increase spreads or commission to account for the lack of swaps.

Payment processing commissions: Some brokers charge their clients fees for handling payments when they deposit or withdraw money.

Education: Some brokers sell their clients instructional materials, trading tools or signals to assist them in making informed trade decisions.

None of the aforementioned revenue and profit sources are reliant on the clients’ output. Brokers receive their cut whether traders win or lose.

What causes losses for forex brokers?

When you win a deal, the broker gives you money, giving the impression that it is paying you with its own funds, but this is untrue. When you win, your counterparty—not the broker—must pay you; they are the other end of the trade. As a result, the broker makes money by keeping the commission or spread and avoids any losses.

Because they have stable income sources, forex brokers should never lose money if they are run properly. But what about when their clients do? Does it also impact the broker’s earnings?

The liquidity providers, such as banks, and the traders are connected by forex brokers. So, logically speaking, they shouldn’t be related to the trader’s profit or loss. At least, most of them don’t, but some do because they aren’t just intermediaries and are interested in your gain or loss.

Some forex brokers decide to trade against their clients because the income they receive through spread fees is insufficient. They claim to route orders to liquidity providers in an unscrupulous manner. These brokers take on the role of the counterparty rather than letting traders compete against actual market participants.

They engage in trading in this situation, which could result in financial loss, however not all brokers work against their clients.

Various types of brokers

Depending on the type of broker they are and how they engage in trading, forex brokers could experience financial loss.

Market makers

Market makers are brokers who conduct transactions with their clients to increase market liquidity. Brokers can become market makers and profit from the liquidity they generate for the market, whereas market makers are often big banks and hedge funds.

On these platforms, where they serve as counterparties to their clients, they determine the bid and ask prices. In other words, they take the other side of the trade and move in the opposite way anytime a client takes a position.

They decide how to establish the exchange rates so that they can profit from it. Additionally, they receive additional income from their market-making activities thanks to the spreads they charge.

They operate on the premise that the majority of forex newcomers lose money. So, in addition to spreads and commissions, they can make substantial profits by taking the other side of the trade.

Market-making, however, can result in brokers losing money since they trade against their clients and lose when those clients win.

STP brokers

Spreads and markups are the sources of income for STP (Straight Through Processing) brokers.

They pass on their trading orders to liquidity providers rather than trading against their clients. Additionally, they base their price determination on that of liquidity providers and may only include a tiny markup.

STP brokers cannot lose money if their clients profit because they are trading against other market participants. Instead, they want their clients to succeed so that they may keep working with them.

ECN brokers

True ECN, which is very similar to the STP approach, is preferred by the majority of seasoned and high-volume traders. They gather prices from many liquidity providers and select the most reasonable ones to post on their systems as the best bid/ask pricing. Since they don’t set prices, in contrast to market makers, they don’t manipulate pricing.

Orders are sent to liquidity providers by legitimate ECN brokers using electronic technologies. They do not rely on spreads for their income. They only impose tiny and fixed commission fees on each trade, and their spread markings are zero. Because of this, many seasoned traders favor doing business with them. Additionally, because they don’t compete with their clients, they don’t have any interest conflicts with them.

They don’t lose money when their clients win, just like STP brokers. Instead, they favor their clients’ success and increased transaction volume.

False ECN brokers, on the other hand, could assert that they route your orders to liquidity providers while really sending them to a market maker broker who trades against you. Thus, if you succeed, they lose money.

How much money do forex brokers lose?

If you win the trade, market makers who trade against you will lose money, but how frequently can this happen? Your trading information, tactics, and orders are all accessible to your broker. It entails that they can engage in trading with clients they are confident will lose. To ensure they won’t suffer financial loss, they often trade against novices. You can avoid this altogether by using a broker with no dealing desk intervention.


Commission fees and spreads, or the price difference between the asking and selling prices, are how forex brokers make money. Although it might seem insignificant, the volume of deals results in substantial revenues for brokers. Additionally, they have other income sources like interest rates, leverage and specialised trading tools. If forex brokers receive their income from these sources, they don’t lose any money. However, if the trader wins the trade, those who trade against their clients will lose money.

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