Do Forex Brokers Want You to Lose?

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

You may have heard numerous unfavorable remarks about brokers as a forex trader, accusing them of various unethical behaviors. Some people think that brokers don’t want their clients to succeed and don’t have their best interests in mind. Do forex brokers intend for you to lose, then?

Not all forex dealers desire your loss. They naturally want you to succeed and trade more as they profit from spreads and commissions. Dealing desk brokers (market makers), who trade against their clients, prefer that they lose because a victory for them equals a loss for them.

This post will discuss why brokers want you to succeed. Additionally, we’ll reveal which brokers are out to get you and why.

Why would a forex broker want you to lose?

Consider how your broker will earn from your transactions to determine whether they want you to win or lose.

Retail traders execute trades through forex brokers, who act as middlemen between them and liquidity providers with access to the real market. The trader and the broker do not conduct any business together. Spreads and commissions are the two main ways that forex brokers make money.

Therefore, they get spreads on all of your trades whether you win or lose. They appear to be more concerned with the quantity of traders than with who profits or loses because of this. By providing more rewards, they strive to entice you to stay and trade more.

For instance, they offer leverage so you can trade with more money than you can afford. If you succeed, you’ll be more motivated to work more, which will benefit the broker as well as you.

Brokers also offer educational courses in an effort to assist their clients. They aid traders in developing the abilities necessary for profitable trading in this way. By regularly publishing blog entries and educational information on their websites and social media pages, they aim to improve their clients’ understanding.

By providing demo accounts, they also assist their customers in better understanding the platform. In this approach, they make it possible for beginners to work stress-free on a simulated version of the platform. By using these sample accounts to test their new techniques, even seasoned traders can gain from them.

Others help their clients identify their issues in order to secure their success. Reputable brokers have automated algorithms that analyze trades and provide information on what traders may change. They assist you in lowering stop-losses, raising profits, and reducing risk.

Brokers can even assist you in determining the optimum entry points and the market trend. These tactics show how their clients’ success leads to their own success.

Additionally, a trader who is successful or unsuccessful is more inclined to stick with a broker. Most forex traders, especially newcomers, are unable to endure their initial losses and quit the industry. Therefore, it is in a broker’s best interest for their client to succeed and carry on trading.

But not all brokers care about the success of their customers.

Which forex brokers want you to lose money?

As we’ve already discussed, the spreads that forex brokers charge for each trade are their primary source of money, but some of them don’t appear to be satisfied with that and look for additional revenue sources. One of them is trading in opposition to their customers.

The best way to avoid them is to be aware of the types of brokers who trade against you. There are primarily two categories of brokers.

Dealing desk brokers

Market makers are another name for dealing desk brokers. These brokers give their customers access to the market. They operate as the counterparty to the trader and take the opposing side of the transaction. Not that the dealing desk brokers lack access to market participants, quite the contrary. They establish connections between traders and actual market traders, but they make decisions regarding which orders to send and which to hold in-house.

There are essentially two categories of clients:

The clients that the brokers choose to link to the market are known as A-book clients. There is no conflict of interest because the broker routes the order directly to the market; they are unconcerned whether you win or lose. How often you conduct business with them is all that matters to them. A-book clients are frequently profitable and successful traders who brokers prefer not to compete with.

Clients on the B-book are customers that the broker chooses to keep on staff by internalizing their orders. Typically, these are novices that the broker is confident will lose. Therefore, they earn by trading against the trader. Because there is a blatant interest conflict, your broker will want you to lose at that point.

No dealing desk brokers

To banks and other significant financial institutions known as liquidity providers, non-dealing desk brokers send deals. They give their clients access to actual market players in this way. They serve as pure middlemen, sending only deals and without profiting from your loss. They seek for the best costs from all liquidity sources in an effort to assist their clients.

There are two types of non-dealing desk brokers: STP (Straight Through Processing) and ECN (Electronic Communications Network) brokers. Both of them route orders to liquidity providers via electronic systems. Only the commissions and spreads are different.

Make sure the ECN broker you want to work with is legitimate, though. Despite being market makers, many brokers make the claim to be ECN brokers. One of the most crucial aspects of forex trading is selecting a reliable broker, so conduct your research before making an investment with one.

Selecting a reliable forex broker

Forex trading is impossible without a broker. Given the significance of having a dependable and trustworthy broker, consider the following when selecting one:

Broker type: ECN brokers are your best bet because they have no financial incentive for you to lose the trade. Additionally, they are substantially more dependable because they employ electronic networks.

Regulation: Establish an account with a regulated broker that is governed by the principal regulatory agencies in your nation. The regulatory organizations that issue forex regulations in the US are the CFTC and NFA. These regulatory agencies make sure your broker complies with industry standards even if forex laws are less stringent than those for other markets. After all, you’re handing over your hard-earned cash to them, so you need to make sure it’s secure.

Costs and commissions: If you’re a successful trader, particularly if you engage in day trading and scalping, you’ll likely spend a sizable portion of your capital on trading fees. Therefore, search for brokers that provide affordable rates, especially for popular currency pairs. Look for stable spreads instead of variable spreads in high-volatility scenarios.

Resources: Additional benefits and resources are provided by brokers who want their clients to succeed. Look for free trading platforms, guides, tools for market analysis, and signals for market mood.

Customer service: If the broker doesn’t have a strong staff to assist clients with their concerns, every difficulty that arises due to technological problems may result in your loss. A trustworthy broker should offer first-rate client service and be accessible at all times.

Conclusion

By giving their clients access to trading platforms and linking them to the market, forex brokers play crucial roles in the success of their clients. Spreads and commissions are the main ways in how brokers make money.

Brokers naturally don’t care whether traders gain or lose because there is no conflict of interest with the trader. Some of these brokers do, however, make money when their clients lose. These are market makers who open a position opposite to the trader and take the opposing side of the trade.

Because of this, forex traders should always search for brokers who are reputable and have their best interests in mind.


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