Brokers' types
There are 4 main types of Forex brokers:
market operators, market makers, small
brokers and kitchens. Let's examine them.
a) Market Operators
This most reliable group includes big
commercial banks which are regulated
according to bank laws and rules. But to
trade with such banks one needs bills of big
amount, as from bigger multinational
companies, keeping them away from the
private investments. Minimal lot is
approximately $1 000 000.
b) Market-makers
Market makers are financial not numerous
enterprises which work with smaller broker
companies and offer theoretical
opportunities of Forex trading to
individuals whose trading capitals exceed
$50,000. They offer lower cost of Forex
market trading and as a rule have more
reliable financial base and integrity.
However, the minimal size of the bill for
$50,000 keeps them away from the main Forex
market traders.
c) Small brokers
Here are little broker's enterprises
working with individuals' small capital -
which is from hundreds up to several
thousand dollars. Risks of carrying out of
deals begin when these little broker
enterprises clear orders of their clients
and work with the dealer or a market-maker.
As minimal sizes of the bill which the
market-maker demands from these brokers are
bigger, it often happens that the local
broker merges capital from all the bills of
their clients in one bill at a market-maker
intended for a broker company. According to
this system, the Forex market trader makes
the broker company's dealer to get the
quotation on an input or an output from a
position, and the dealer, in his part, to
receive the quotation, influences a
market-maker. As soon as the quotation
reaches the Forex market trader, he or she
instructs the dealer about an input in a new
position or an output from an existing
position, and the dealer writes it down at
respective regulation of the client's bill.
As this is the most important moment of the
deal, and the dealer makes the respective
bargain on their own bill at a market-maker.
Therefore, if the client's market inquiry
or the deal goes well, the client gains
benefit - which is gross profit from Forex
market trading a minus spreads and
commission fee. The broker company also gets
its own respective benefit on Forex deal
with their market-maker which is the same as
net profit that they will pay to the client
plus their own commission and, maybe, little
spread. Lost in this deal - the market-maker
which has put this money in a pocket, but
has lost profit gross from the deal on the
whole, got by this broker company. It's
important to remember that some broker
companies give the client spread bigger than
they themselves get from a market-maker, and
that's another way of getting benefit in
addition to their commission. Certainly,
they'll never confess it. The spread can be
twice as great. Of course, if the client's
case turns out to be unsuccessful, the
broker company suffers big loss from the
client's bill and will have to pay a
market-maker the pure loss after withdrawal
of its broker payments and commission fee.
In any case, the broker company still gets
the commission and a little spread.
Kitchens
The scheme of "kitchen" works fine if
somebody doesn't start to win all the time.
Their founders know that many clients just
lose their money. And the profit of
"kitchen" is these clients' losses. Then
"kitchen" is closed with the remnants of
clients' money and about two months later
appear under other name. The scheme usually
works like that. They offer to teach you for
free and to learn how to trade in Forex
market. They say this will easily bring you
unbelievable profit for the short period of
time. They make you believe that 5 % a month
is quite achievable but only in case if you
open the bill of $1000 at their company.
Their teachers are as a rule fine either
non-professional Forex market traders or
even the people who have never traded in
Forex market independently. These lessons
last for only several hours.
Sometimes the clients are taught with the
help of programs "simulators" where any
trader "is earning" about 1000 % a week. The
biggest part of these "students" are losing
their deals from the very start, and every
time they're sure that was a good lesson
which will make their technics
irreproachable, and their following Forex
market trading will go successfully. Many of
these clients run out of their deposits fast
and leave the market, while more stubborn
ones "add" money to their bills to receive
another chance and to gain profit at last.
Al last they lose all their money and leave
with physical and financial damages. It's
the "victory moment" for such firms as it is
their bread and butter. It's they who gain
the biggest part of profit on losses of such
deals, and many firms also win from spreads
or commission fee which they demand for
these transactions.
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