Forex Brokers Exposed

Forex traders need to know about their forex brokers if they want to really start trading forex. There are many myths and scams that need to be exposed. Many retail forex traders are too simpleton to understand the games the forex brokers play with them. You need to learn forex nitty gritty.

Retail forex market where small traders like you and I trade forex is different than the interbank forex market. Interbank forex market is where big banks, corporations, hedge fund and other institutional investors exchange currencies. It is only open to big players.

The internet revolution made retail forex trading possible. Anyone can open an online margin account with a forex broker and start trading forex from the comfort of his/her home. But the problem is this that retail forex market is loosely regulated. Being not well regulated lets the forex brokers do whatever they like with you.

You should be beware of those games. You need to know the following facts while trading forex:

Pricing is Not Transparent: Being an OTC (Over the Counter) market, forex broker can quote prices that may not be fair but you have accept them or choose another broker. The prices that your forex broker is going to quote to you, is the price that you will get. You cannot do anything about it.

Encouraging Leverage: Your forex broker will encourage you to use a high leverage like 100-1 or 200-1. Leverage is good when you are winning but it will wipe you out in case of a loss. Most of the retail forex traders are amateurs and dont know how to handle leverage, they expose themselves and get wiped out in the market quickly. The more you lose the more your broker will make. Don't use too high leverage.

Brokers try to trade against you: Forex brokers act as an intermediary between the retail trader and the interbank forex market. Since most of the retail trades are too small in size and cannot be immediately offset in the interbank market, forex brokers get the opportunity to trade against you. If you go long, the broker will go short and if you go short, the broker will take the long position. As most of the retail traders are not good traders and lose most of the time, forex brokers make profit from this.

Unfair practices: Just like Casinos, Forex Brokers dont like winner. If you are winning too much, your forex broker may resort to denying the service to you or complicate execution of your trades so much as to make it impossible for you to trade.

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.

For enticing new clients, vast sums of money are spent on advertising by forex brokers. You can check this fact by going on Google and typing any forex related keyword. Almost all the ads will be by forex brokers. Each click costs them around $1.

One way is to announce forex trading contests that reward the winners with $2000, $1000 and $500 cash prizes. Who is the actual winner in these contests? Your forex broker!

In order to win, many small traders get wiped out losing their money. This is just a trick forex brokers use to make you trade more. The more you trade, the more money your broker makes. This trick is similar to a lottery.

There is no check on the forex brokers. They can quote any rate to you. Forex brokers do this by adding 2 3 or even more pips to the interbank market pip spread.

These 3 or 4 pips are the risk free profits that the brokers make for each round trip trade. You see why forex brokers are giving you free platforms and trading signals, only to make you start trading as soon as possible. Your broker will make more risk free money, the more you trade!

Price shading is another practice used by forex brokers. If the broker thinks that price of a particular currency is on a rising trend, the broker will add a few pips to the currency quote in anticipation of that move. You can't do anything.

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.

The blip was so momentary that you cant do anything. It was a momentary spike, so small that you could not trade but enough to trip 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. Read about Trend forex system.