In this episode of Truth About FX, Walter answers a common question: does my broker trade against me? Also, he digs into the different types of brokers, how knowing what type of trader you are can help you choose the right broker for you, and the advantages of having multiple brokers.

Download (Duration: 07:55/ 9.07 MB)

In This Episode:

01:06 – profitable traders

02:24 – loan shark

03:06 – Market Maker

05:03 – next black swan

06:38 – multiple brokers

Tweetables:

Don’t place all your money on one broker alone. [Click To Tweet].

Essentially, the Marker Maker broker has more liquidity.  [Click To Tweet].

The kind of broker that you will have will depend on your trading. [Click To Tweet].

Hugh: Hey, Walter. This is a common question that we get. I’ve heard that the brokers trade against me, is that true?

Walter: Yeah. The answer is, it depends. Some brokers essentially are the market makers so what that means is when you buy the EUR, your broker makes money if the EUR goes down and you can’t stop that. Okay?

However, there is a caveat. If you show that you either: one, have a very big account with your broker; or two, show that you make profit over the first month. Then, your broker will lump you into a group of traders who actually make money and they will make sure that those traders can’t hurt them.

In other words, if all of the traders in the A group is profitable traders going long in EUR, then they’ll go long the EUR, too, to innovate the market to offset those games that the winning traders are making.

They don’t want to be hurt by those traders. That’s how they’ll offer it. So the  answer is, yes. They are trading against you in the case of having a Market Maker broker.

If your broker is a little bit different and you can see the depth of the market, you can see the orders on your trading platform, then what they’re doing is they’re matching up your order with other orders.

In other words, if I wanted to buy fifty million EUR against the USD, they would have to match me up with the fifty million EUR seller. That’s actually why they have their own little market with all of their customers in there and they’re matching those up. Those brokers are not trading against you, but in most cases your broker will be trading against you.

Now, here’s the thing.  We’re just talking about this in webinar, so it’s a timely topic. Basically, it seems like traders want to go with the ECN sole broker where they’re actually matching your trades up with other traders. That makes more sense. It feels nicer because your broker is a good guy.  They’re not trading against you.

Here’s what we found out with the Francogeddon incident where Fxean basically went bust and several others, until loan shark came in and save them. Also, there was another, at least one more in New Zealand that went bust and severaI others I believe that went bust because they we’re ECN’s.

Why did they go bust? Here’s why. Essentially, those brokers, they have to make sure that they push through their orders into the interbank marke...