Retail Forex Brokers Retail forex brokers or market makers handle a minute fraction of the total volume of the foreign exchange market. According to CNN, one retail broker estimates retail volume at $25-50 billion daily, [2]which is about 2% of the whole market. CNN also quotes an official of the National Futures Association "Retail forex trading has increased dramatically over the past few years. Unfortunately, the amount of forex fraud has also increased dramatically." All firms offering foreign exchange trading online are either market makers or facilitate the placing of trades with market makers. In the retail forex industry market makers often have two separate trading desks- one that actually trades foreign exchange (which determines the firm's own net position in the market, serving as both a proprietary trading desk and a means of offsetting client trades on the interbank market) and one used for off-exchange trading with retail customers (called the "dealing desk" or "trading desk"). Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky. The dealing desk operates much like the currency exchange counter at a bank. Interbank exchange rates, which are displayed at the dealing desk, are adjusted to incorporate spreads (so that the market maker will make a profit) before they are displayed to retail customers. Prices shown by the market maker do not neccesarily reflect interbank market rates. Arbitrage opportunities may exist, but retail market makers are efficient at removing arbitrageurs from their systems or limiting their trades. A limited number of retail forex brokers offer consumers direct access to the interbank forex market. But most do not because of the limited number of clearing banks willing to process small orders. More importantly, the dealing desk model can be far more profitable, as a large portion of retail traders' losses are directly turned into market maker profits. While the income of a marketmaker that offsets trades or a broker that facilitates transactions is limited to transaction fees (commissions), dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits. The rules of the game in trading FX are highly disadvantageous for retail speculators. Most retail speculators in FX lack trading experience and and capital (account minimums at some firms are as low as 250-500 USD). Large minimum position sizes, which on most retail platforms ranges from $10,000 to $100,000, force small traders to take imprudently large positions using extremely high leverage. Professional forex traders rarely use more than 10:1 leverage, yet many retail Forex firms default client accounts to 100:1 or even 200:1, without disclosing that this is highly unusual for currency traders. This drastically increases the risk of a margin call (which, if the speculator's trade is not offset, is pure profit for the market maker). According to the Wall Street Journal (Currency Markets Draw Speculation, Fraud July 26, 2005) "Even people running the trading shops warn clients against trying to time the market. 'If 15% of day traders are profitable,' says Drew Niv, chief executive of FXCM, 'I'd be surprised.' " [4] In the US, "it is unlawful to offer foreign currency futures and option contracts to retail customers unless the offeror is a regulated financial entity" according to the Commodity Futures Trading Commission [5]. Legitimate retail brokers serving traders in the U.S. are most often registered with the CFTC as "futures commission merchants" (FCMs) and are members of the National Futures Association (NFA). Potential clients can check the broker's FCM status at the NFA. Retail forex brokers are much less regulated than stock brokers and there is no protection similar to that from the Securities Investor Protection Corporation. The CFTC has noted an increase in forex scams [6].
offset... I believe this is incorrect. They would buy in this example below....Did you write this or was it a quote?...may I know who wrote this? You see in the "offset to hedge" they want their aggregate positions (BOOK) to move TOGETHER with their Hedge (OFFSET HOLDINGS). There is not a directional risk...just the spread to make. Offsetting is for protection... Many retail FX market makers claim to "offset" clients' trades on the interbank market (that is, with other larger market makers), e.g. after buying from the client, they sell to a bank. Nevertheless, the large majority of retail currency speculators are novices and who lose money [3], so that the market makers would be giving up large profits by offsetting. Offsetting does occur, but only when the market maker judges its clients' net position as being very risky. ----------------------------------------------------------------------------------- now the 2nd. scenario of the dealing desk scenario does happen...there are even computer programs assisting the retail dealer with this...How do I know? I went for an interview once...Just think I could of been your worst nightmare! In the retail forex industry market makers often have two separate trading desks --------------------------------------------------------------------------------- I think the real message here...is Your dealer/marketmaker holds the purse strings to your account. He controls the quotes you see...your executions you get... and the balance in your account...thats all thats it! dealing desk brokers can generate income in a variety of ways because they not only control the trading process, they also control pricing which they can skew at any time to maximize profits.
I challenge you to name one....I will need proof too...an ECN model is not this below. A limited number of retail forex brokers offer consumers direct access to the interbank forex market.
no i did not write this i got this from goforex.net and yes some retail forex broker do have straight thru process direct interbank trading. fxdd is one of them if your trading 100,000 and interbankfx.
you say you need proff well i have account with fxdd i trade 1mill trade i also have account with mb trading ecn.
oh... so you have Currenex software to compare when Citibank puts up a price? lol...oh and yes Citibank is going to take a pikers one lot trade? I am skeptical
The secondary market is only accessable to us. The primary market is not. And I do not think they want us. If I had several hundred million or one billion...could I get the Currenex software and get my own ID# like a bank has? How does all of this really work?...Do I need to be a bank? Wifey
This is one of the biggest, and I'm one of the victims. If you want to help us and especially if you are a RefcoFX customer about to file your proof of claim, Visit here; http://www.refcofxaccountholders.com Robert
Fxdd offers STP but InterbanFX disables STP when you are scalping profitable or get too big, they also skew prices and run stops