If a broker is properly regulated, following the rules etc., there are at least 2 ways it makes money. One, through commission, two, reselling.
A broker does not act in the same way as a trader. A trader may be a customer of the broker, and the broker may have many customers.
The broker may have a supplier from whom the broker buys from or sells to. If the broker can get his goods at say, bid-ask: 8-9, he may quote at 7-10 making one pip from each side.
If one pip is $10 and each of his customers trade once a day, opening and closing their positions, the broker makes $20 from each customer, regardless of whether the trader wins or loses. If the broker has 1000 customers each trading once a day, then the broker makes: 1000 x $20 a day = $20000 a day.
The purpose of the broker is quantity of trades, whereas the trader's purpose is quality of trade. The more the traders trade the richer the broker gets, regardless of whether the trader wins or loses.
A broker does not act in the same way as a trader. A trader may be a customer of the broker, and the broker may have many customers.
The broker may have a supplier from whom the broker buys from or sells to. If the broker can get his goods at say, bid-ask: 8-9, he may quote at 7-10 making one pip from each side.
If one pip is $10 and each of his customers trade once a day, opening and closing their positions, the broker makes $20 from each customer, regardless of whether the trader wins or loses. If the broker has 1000 customers each trading once a day, then the broker makes: 1000 x $20 a day = $20000 a day.
The purpose of the broker is quantity of trades, whereas the trader's purpose is quality of trade. The more the traders trade the richer the broker gets, regardless of whether the trader wins or loses.
A manufacturer sells his products to a wholesaler, a wholesaler sells those products to the retailer, the retailer sells those products to the end user.
Toyota manufactures a car in Japan, it sells to wholesaler, wholesaler sells to retailers, retailers (maybe including Malayan Motors the company) sell to car buyers.
Toyota manufactures a car in Japan, it sells to wholesaler, wholesaler sells to retailers, retailers (maybe including Malayan Motors the company) sell to car buyers.
Rhody Trader
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Most forex operations are not, in fact, brokers. They are market makers as they take the other side of your trade. The bulk of their profits come from the spread. My guess is that in most cases they try to maintain a neutral net position, which means they hedge any excess exposure to customer account positions in the market.
Rhody Trader
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Indeed, the forex operators are quite a bit like bookmakers, though the complexity of the market suggests more intense risk-management application.
A broker executes a customer order for a fee (commission), and generally doesn't take a position one way or the other. That is why I would not refer to most forex shops as brokers.
A broker executes a customer order for a fee (commission), and generally doesn't take a position one way or the other. That is why I would not refer to most forex shops as brokers.
Rhody Trader
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I'm sure it's quite profitable, otherwise there wouldn't have been such an explosion in recent years. I can't say for sure how profitable, though. Maybe someone with a better knowledge of that can respond.
Online forex dealers, in most, cases aim to profit primarily on the spread. They try to have net neutral positions, so they would not benefit or lose regardless of whether the customer does or not.
Online forex dealers, in most, cases aim to profit primarily on the spread. They try to have net neutral positions, so they would not benefit or lose regardless of whether the customer does or not.
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