Pitfalls of Retail FOREX Brokers

Dealing with retail Forex brokers can sometimes be challenging as a trader. There are many problems that you may encounter when working with this type of broker. Here are some of the pitfalls of retail Forex brokers.

Market Maker

As a retail Forex broker, they are what is known as a 'market maker.' This means that whenever you are trading with them, you are not actually seeing the real Forex market. Instead, they are filtering the data and providing you with what they want you to see. While it will be very close to accurate, there are going to be some subtle differences. Because of this, they can keep the pip differences in the trades as profit. This allows them to make more money off of each trade and keep you in the dark.

Trading against Customers

Retail Forex brokers know that the vast majority of traders are going to lose money in the long run. The Forex market is very difficult to predict and because of this, most traders end up losing money. Since Forex brokers know this, they make a habit of trading against every trade that is made by a customer. Instead of processing your order straight to the market, they simply conduct the order in-house. Since they do not pass the order straight into the market, they have to create a party for you to trade against. In order to do this, they have to take the opposite position of whatever you take. This means that they have a conflict of interest. They want your business, but they also want you to lose every trade.

Have Access to Orders

Another big problem that presents itself when working with retail Forex brokers is that they have access to all of your trades as they happen. As we discussed in the last section, they are trading against you every time. Therefore, you can see how it would be a problem for them to have access to all of the information about your trade. They know exactly where you are getting into the market and exactly what your target is. They even know what your stop loss value is.

With this information, there are a number of ways that the retail Forex broker can manipulate the trade in order to take advantage of you. For example, if the market is moving upwards toward your target, they could filter the data to make it look like the price did not quite reach your target. Then, if the market suddenly reverses, you will not be able to reach profit on that trade.

In the opposite direction, when they know where your stop loss value is, they will be able to take advantage of this also. They can simply move the market down quickly in order to hit your stop loss value. This will immediately take you out of the trade and cause you to lose money.

blog comments powered by Disqus
Scottrade