FOREX "Trading Against You"

Discussion in 'Forex' started by bootize, Aug 3, 2006.

  1. bootize


    Hello Everyone,

    I am an experienced trader, but have never traded in the FOREX markets. I am still preparing to do so, but have a question.

    I've read through many posts about Forex trading and have found a couple of common themes. I have a question about one of them.

    I see comments about brokers "trading against you" In particular, I've seen that about FCXM a lot.

    What does it mean when they "trade against you?" It doesn't sound like I could trust a Forex broker that does that. Do they all do that? or only some?

    Thanks Guys/Gals!
  2. WarEagle

    WarEagle Moderator

    Since there is no central marketplace for spot forex like there is with futures or stocks, the trades are executed in-house with retail forex brokers. Many will tell you that they offset these trades in the interbank market but given that most retail traders lose money, it pays for them to keep the trades themselves.

    Some of the more unethical brokers will try to restrict your trading if you are profitable, putting you on what they call manual execution so you have to request a quote before you can get filled. In the past there were also problems with brokers reading your account and then skewing the quotes you get against your current positions as well as stop running way outside prevailing market prices. Some of this has changed now that the NFA has started watching US firms, but its always buyer beware in this business.

    In essence what you have is a network of old fashioned bucket shops. There is a quote feed consisting of what prices the broker is willing to deal at that will usually follow the actual aggregate market, but during volatile times, these prices can diverge quite a bit. If you want to trade with that broker, you have to take whatever price they are quoting, regardless of what you may see from another feed.

    I am not saying you shouldn't trade forex, but you should follow the "trust but verify" motto. Most brokers have free demo accounts where you can watch their live quotes side by side to see how it works. Pick one with tight spreads that has good feedback from clients. If you are consistently seeing the same complaint over and over for a broker, then you can be pretty sure that the problem is widespread at that firm.

    There are a couple Forex ECN's that are trying to carve a niche where you can post your own bids and offers but the limiting factor there is volume. Eventually, I think this is how the market will evolve, but it takes time, especially since the big boy players already have their own way of doing things (they don't need a central market like retail traders do). Of course, I thought the ECNs would take over years ago, so maybe I am just hoping. Another option you could consider are currency futures and avoid these guys altogether. You will find supporters and detractors of both, so you just have to decide that for yourself.
  3. bootize


    Great info...

    Thanks! :)
  4. pctrader


  5. bootize


    Thanks Pctrader! I have now bookmarked that site! :)
  6. bootize


    Does anyone have any insight on this in regards to GAIN Capital? Are they cool... or should I stay away?

  7. Gain is a well known name in the FX part of the trading world. I personally trade there and have had nothing but good experiences with them. Overall good broker

  8. shipeichong

    shipeichong Guest

    So, which are the forex companies that are most well known for trading against their own clients?
  9. Surdo


  10. WarEagle

    WarEagle Moderator

    Yep, they all do it. Its how the "commission free" model works. There is no such thing as a free lunch.
    #10     Aug 11, 2006