Ever wondered how forex brokers work? How they make money? To answer these questions, you need to understand the different types of forex brokers and their various business models.

Unlike humans, not all forex brokers are created equal. Some are much more competitive than others and some, are just outright scammers.

All forex brokers will tell you they make their money off the spread the difference between the buy and sell pricehowever lots of brokers actually only derive a small portion of their income from spreads.

How do they make money then you ask? By trading against their clients. These brokers are known in the industry as market makers. The problem is, the vast majority of forex brokers actually operate in this manner. When you first start out trading you assume you are buying and selling from other participants in the market: Market makers are not only fully aware of this, their entire business model revolves around it.

Market makers make money when their clients lose, simple as that.

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This is a glaring conflict of interest, rather than the broker making money when the client wins and continues to trade, they actually have a vested interest in their client losing! The market maker game is to recruit new traders by the hundreds, offer some free, substandard education, or a bonus.

Even if the new trader is lucky to begin with and makes money off their bonus, they will likely then make a much larger deposit which they eventually lose. Because of the inherent conflict interest involved in making a market, some though not all market makers have been known to engage in some extremely nefarious tactics.

There are horror stories of unexplainable spikes, spread widening, stop hunting and even refused withdrawals and closed accounts! STP is short for Straight-through Processing, STP brokers essentially operate on the model you thought your market making broker used: STP brokers aggregate prices from their liquidity providers and add a small markup, you place your order with the broker, the broker passes the order on to their liquidity provider retaining the small difference in spread.

Because you are trading against other participants in the market and not your broker, STP brokers have no interest in you losing. In fact, if you lose money and stop trading, then you are no longer earning your broker money. Even so, many professional traders and scalpers find the third brokerage model to be cheaper: True ECN is the logical conclusion of the STP model and is favoured by the mike parnos option trades majority of professional and high volume traders.

As far as execution is concerned, the model is almost identical to STP: There is zero spread mark, the spreads offered on true ECN accounts are razor sharp, often as low as 0 pips. These are very best prices available in the real forex market right at the time.

Razor-sharp, zero mark-up spreads and transparent fixed fees make ECN accounts the favoured option for scalpers, professional forex courses in uk and tick data stock market running automated systems that are adversely affected by wider spreads.

Just like the STP model, there is zero conflict of interest between the trader and broker when trading on a true ECN account. Your true ECN broker wants you to succeed in trading, grow your account and begin to trade size. The more size you trade, the more your broker makes. ECN accounts were formerly only available to high net bollinger bands mq5 and institutional clients, but over the past few years traders have become more savvy and there has been increasing demand for the best deal from retail clients.

We hope you have enjoyed this piece on the different types of forex how do fx brokers make money and how they daily elliott wave analysis forex. In summary, market makers are the most expensive option for trading and actually make money when their clients lose, bad spreads are only part of the story, some traders have experienced a lot worse!

STP brokers on the other hand are a huge step up and a great how do fx brokers make money for traders who are just getting started on their trading journey. When it comes to serious professional trading, scalping or automated trading though, there is only one option: FX Empire - the company, employees, subsidiaries and associates, are not liable nor shall they be held liable jointly or severally for any loss or damage as link result of reliance on the information provided on this website.

The data contained in this website is not necessarily provided in real-time nor is it necessarily accurate. FX Empire may receive compensation from the companies featured on the network.

All prices herein are provided by market makers and not by exchanges. As such prices may not be accurate and they may differ from the actual market price. FX Empire bears no responsibility for any trading losses you might incur as link result of using any data within the FX Empire.

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How Do Forex Brokers Work? Market Makers and Spreads All forex brokers will tell you they make their money off the spread the difference between the buy and sell pricehowever lots of brokers actually only derive a small portion of their income from spreads. STP Forex Brokers STP is short for Straight-through Processing, STP brokers essentially operate on the model you thought your market making broker used: True ECN Forex Brokers True ECN is the logical conclusion of the STP model and is favoured by the vast majority of professional and high volume traders.

So now you know … We hope you have enjoyed this piece on the different types of forex brokers and how they work.

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