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FX retail brokers
Posted: Tue Oct 24, 2006 11:31 am
I wonder; do these forex retail pool operators actually trade in the forex markets or they just fill the orders customers place using their own funds knowing that 95% of them will go bad due to volatility and high leverage?
Is there any regulation that foirces these firms to actually take a position in the interbank forex market?
Posted: Wed Jun 20, 2007 8:59 pm
When you open an account with a forex firm to do online trading, the firm is acting as a market maker, buying from all sellers and selling to all buyers. If half their customers go long and half go short, they make their money on the spread. They have no reason to deal with banks because their trader has no net position. If there is a lopsided market, then they can lay it off in a big trade with a bank.
Note that this is the same way banks work. A large corporation calls a bank and wants to buy USD10MM of EUR, the bank is taking the other side. It might offset it with another commercial customer, a domestic or foreign bank, or it might keep it as a speculative outright position, maybe for a few minutes or maybe even overnight.