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Forex broker strategy - Brokerage
Brokerage is the act of dealing with the
client's transactions at the stage of their
performance. The broker makes money, since
the market "moves" against the client, and
it is feasible to alter the market, using
different methods. Because of that,
brokerage can only be cost-effective when
the number of clients, as well as the amount
of transactions per client, is high. In
addition, all the transactions pass through
the dealer before they read the client.
Because of that, the dealer always stands
in-between the client and the broker. Upon
the opening of a position by the client, the
dealer passes the broker's quotation to the
client. The market prices are identical for
both the client and the dealer. When the
client opens a position and requests a
quotation, the dealer knows for sure the
client's future action, which can be either
a purchase or sale.
The dealing centers' profit consists of
the difference between the price at which
the dealer closes the position and the price
at which the client closes the position.
With the information mentioned above, the
dealer can change the market for the client
in any way. The dealer gives the client a
quotation at a worse price than that of the
market at the time of the transaction. The
client will usually close the position under
the dealer's price.
The dealers get familiar with the
behavior of the client. Hence, right at the
time when a client opens a position, a good
dealer accurately forecasts the client's
future behavior, and thus can easily "shift"
the market. The dealer does that at the time
when the client requests a quotation, but
can also repeat the process at the moment of
the closing of the position. As a result,
the dealer always trades at better prices
than the client.
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