Forex Brokers - a Traders Natural Enemy

By: Harold Hsu

Forex trading brokers are very easily found through a simple search online. This is often because the brokers spend a lot of money advertising their services. Their websites are often chocked full with theories and strategies that are supposed to "help" traders make money. And unfortunately, many new traders buy into them.

The uncomfortable truth

The first thing every trader must know about brokers, is that most of them are your "natural enemies". Allow me to explain what I mean...

You see, most Forex brokers are what we call "market makers". This means that the market prices that they quote to you are not necessarily ACTUAL market prices. Market makers (as the name suggests) provide their own little version of the market for you to trade in. They can quote a few pips higher or lower than actual market prices, and they'll often quote the price that gives them the best chance of taking your money.

Here's the thing: many traders know that brokers charge a pip spread for transaction fees. But the thing most traders don't know is that market makers also MAKE money when you LOSE in a trade!

Yep, you heard me right. Market makers are not just middlemen, no. They actually take opposite trade positions as their traders. So if you buy EUR/USD for example, they'll sell EUR/USD. If you sell the USD/JPY, they'll buy.

Can you see the conflict of interest here?

Market makers benefit whenever you lose in your trades. Now I don't know about you, but I certainly wouldn't like to be learning how to trade from the people who make money when I lose!

This is a crucial point all traders must understand. Listening to the advice of Forex brokers is in my opinion the same as taking advice from your enemy. It's a big mistake!

BUT!

You should also be aware that not all brokers are market makers. There are some brokers that don't take the opposite position of your trades. However, such brokers are quite uncommon. Be sure to ask your broker if they are market makers... at least then you can better plan your trades knowing whether your broker is trading against you.

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