who are the brokers

Since there is no "commision" in currency trading. Does that mean most brokers are also dealers in the currency exchange market?

 

Yes they take a pip or two from the spread and offset the risk onto a bank or via a interdealer system.

 

Not usually, they don't.

They only cover the very largest trades or the ones from the clients they deem category A. As about 90% of all accounts blow up within 6 months they dont hedge any of the rest.

 

Agree. In addition, from an internal risk management perspective, a forex broker need only be concerned with the NET exposure, longs less shorts, per currency pair, across their client-held positions. That net exposure does not turn on a dime, but normally over many hours or days, as can be seen, for instance, from FXCM's weekly published exposures for their client base.

Taking this a step further, due to generally stable intermarket correlations, the broker should be able to control their risk cost-effectively via a relatively small number of hedging trades, in the majors only, with their liquidity providers each day.

 

Don't you think it is more like 98%?

 

I see... Thanks for the replies.


So, the International banks are like the dealers for the non-bank broker-dealers?

Who makes more money in the end?

 

So they are bucket shops?

 

That's a too nice way to put it.

 

Yeah, there's something about the Forex brokers that's incredibly seedy -- no matter how big the brand or umbrella company. I don't know the actually figure, whether it's 90% of whatever, but certainly the majority of accounts are being blown out. I know the typically account is only a few hundred dollars, but to have a business model that takes all of your customers' money and they go away seems less than desirable. The Forex brokers are making so much money that it doesn't matter that their customers lose all their money. They apparently just find more suckers.