Some of them do. Over here (I'm in the UK at the moment) many of the spread-betting firms do exactly that. They continually assess their net positions on every instrument, and hedge the balance. It protects them from large payouts, and it also benefits their customers, who are able to trade without this worry that their "broker" is taking up the other side of the position, i.e. trading against them. They make their living from the spread, which is paid by winners and losers alike, of course. I endorse the comments above about Saxo "Bank". It's strange: because of the lack of consistent international regulation of Forex trading, some of the best-sounding outfits are probably the worst to deal with, while some of the spread-betting firms over here (which are often criticised by ill-informed people with out-of-date information) are the best.
How's Refco as a forex broker ? Is anyone here making consistent money by daytrading forex thru Refco ?
Not accurate. Since rates are higher in EUR than the U.S. the futures trade at a discount to spot. Thus a long in EUR futures sees his position "catch up" or as it's called converge with spot at expiration. ALL futures contracts have similar "cost of carry" dynamics. I suggest you study these terms as well as learn the word: basis.
SethArb, The FX futures contract price will be slightly different than the cash market due to net interest rate adjustment out to the delivery date. This site here can be helpful in getting a feel for Futures prices vs. expiry (including the cash market) http://www2.barchart.com/dfutpage.asp?sym=EC&code=BSTK ... you will see the cash price vs. the differnt futures contracts available. Hope that helps. (ps. all futures have this characteristic
Not accurate. Rates are higher in the US than in EUR. The Euro forward trade at a premium to spot. I suggest you get your facts correct before teaching someone.
The hilarious thing is, I read some posts on another site that actually believe Saxo is a bank! (I mean a real bank)
Really don't understand this comment. How do you define a bank? Of course it is not a bank the size of Citibank, Goldmans or RBS etc but it is a bank. It has a decent amount of capital and is fully regulated as a bank. Furthermore if it ever went bankrupt, as it is a bank, then all depositors are covered by the depositors protection scheme that means the first 60k odd of Euros is not at risk.
I traded with Saxo. The depositor protection, via the Danish government, is 30k Danish (Euro pegged), not 60k Euro. Also, it applies only to cash deposits and, in part, to securities, not spot FX positions. That was last year, so unless the protection has changed and doubled since then, the above post overstates the amount and scope of the protection. Plus, when Saxo burned my FX trading account, I discovered that the Danish government regulator would not provide ANY information to me about Saxo even though I was a Saxo customer. Stone wall of silence.
Correct. Usual sort of story, sadly. Without wishing to offend anyone, the belief that one will necessarily be ok because "a 'bank' must be regulated" is simply the height of naivety. The Forex industry has staggeringly little effective regulation. (One of the many attractions of the UK's spread-betting companies is that they are _very_ tightly regulated by the FSA, which examines every trade made by every client.)