How do FX dealers make money trading against you?

[Alexander0884]

No, that's something else really, although I guess it adds up to the same thing, namely you getting f ucked by them.

Slippage is an entirely natural thing that happens in the real market. It is replicated in the bucket shops, sometimes a little too enthusiastically.

Let's say you want to buy at 12000. You place an order to do so.

But there are no sellers until 12002. Your order is filled (assume it's a market or stop order - which becomes a market order).

You just got 2 pts slippage. That is genuine and nobody's fault. If someone is willing to do the opposite of what you want to do at the same price, you don't get slipped.

If they aren't, you do. This assumes you don't use a limit order - in which case you can't get slipped (negatively, that is to say, against you), but you might not get filled either.

Now with the bucket shop, maybe they replicate the real market exactly (they won't, but let's just say). They give you a worse price (12002) in their own internal market. That's the equivalent of slippage.

But why stop there? It's not a real market anyway, so f uck it - why not fill you at 12004 instead? That's you getting shagged in the dirty box.

Some "brokers" have been caught using software which creates 'asymmetrical slippage' - that is slippage, but only in their favour. There have been some big fines handed out for this.

Of course, in the real market, slippage can work in your favour as well as against you.

Leopard, I understand that concept. But work with me for a sec, when I trade through IG markets I understand that I am NOT trading in a lvie market, what I am trading in is a virtual recplica market ran by IG markets. Therefore there could not be possibly any slippage especially if I am trading contracts, because with contracts its about werther a price had been reached or not, right?

In any case, from your experience is IG markets reputable for a ebginner to learn the ropes - it seems I will not be making money anytime soon and I am more interested in the learning esperience.

 

[The Leopard]

Leopard, I understand that concept. But work with me for a sec, when I trade through IG markets I understand that I am NOT trading in a lvie market, what I am trading in is a virtual recplica market ran by IG markets. Therefore there could not be possibly any slippage especially if I am trading contracts, because with contracts its about werther a price had been reached or not, right?

In any case, from your experience is IG markets reputable for a ebginner to learn the ropes - it seems I will not be making money anytime soon and I am more interested in the learning esperience.

Well their markets are based on something real. But essentially, it's up to them what price you get.

IG I would say is the best of the bucket shops that I tried. I suppose it's OK for learning with, especially if you have to use very limited funds.

If I was going back though, I would have saved up and traded a single lot with a futures broker, using demo until I felt confident enough. There would have been problems with position sizing, which was the main thing that put me off, but overall I think that would have been a better route.

You have to make your own call. If you're just wanting to use very small stakes to get some live feel, I'd say IG are probably OK. But I wouldn't recommend any bucketshop or even superb broker to anyone, it's something you have to research and decide for yourself.

 

[Shakone]

Ok Lets put that aside, as my experience is very limited. WOuld it simply be safer for them to simply take my order and forward to the market, wait for result and cash out?

The LOGIC of them simply betting against me is pure stupid (apologies but I can not see the picture) there is absolutely no LOGIC of placing a blind bet that I am wrong since the way I see it:

200$ long 200$ long
ME --------------> DEALER------------> SPOT MARKET
200$ Short
------------>

So In this scenario if I win, I get hypothetically 1000$, the dealer losses 1000$ and gains comission.
If I lose, I pay dealer 1000$ + comission and the dealer wins 1000$ from the market, however his basis on winning that 1000$ is completely illogical and is independant on my action its like playing roulette.

I mean it makes no sense, why would he even place a bet against me JUST for sole purpose of counter bettering my order. WOuld it not be wiser to do technical analysis of their own and invest accordingly?

Lets say we have Broker A and Broker B.

Broker A always puts your orders into the market so that they are hedged, so they replicate your order. So you enter long, they enter long, they charge you commission and perhaps a wider spread. So if you win 1000, they also won 1000 in the market, and they have commission and maybe spread.

Broker B trades against his clients. You trade long, broker B doesn't, so he is short. If you win $1000, he loses 1000, but gets commission and spread. You lose $1000, he wins 1000 and gets commission plus spread.

Whether it's broker A or B, or a mix of those, they're still likely to profit from most traders. Broker A is obviously very low risk. And anyway if broker B notices that you're killing it, they can always just hedge your orders in the market and bet against the losers.

 

[wackypete2]

Informative thread for new traders.



Peter

 

[tanyach]

They also can wide your spreads, requote your order each time your are trying to enter market, in other words, mess up your trading. Run away from such DD.