Newbies Broker Queries

[alfonzo]

Hi,

Could anyone give me an idiots guide to how the brokers work, specifically

1. Are they like a bookmakers? ie If we win a trade, are we winning money directly from them?
2. I understand they make their 'commission' from the spread they're using, yet I've heard they're averse to scalping. Why is this when it will surely give them more commission?
3. I've seen some posts about brokers being difficult when traders want to withdraw funds, is this common practice?
4. Would they make life difficult for a succesful trader, ie increasing spread, freezing account etc.

The reason I'm asking is I'm wanting to go live next week, and when I start to make my multi-millions :cheesy: I'd like to know what I'm up against! Thanks in advance for any help.

 

[raysor]

Hi,

Could anyone give me an idiots guide to how the brokers work, specifically

1. Are they like a bookmakers? ie If we win a trade, are we winning money directly from them?
2. I understand they make their 'commission' from the spread they're using, yet I've heard they're averse to scalping. Why is this when it will surely give them more commission?
3. I've seen some posts about brokers being difficult when traders want to withdraw funds, is this common practice?
4. Would they make life difficult for a succesful trader, ie increasing spread, freezing account etc.

The reason I'm asking is I'm wanting to go live next week, and when I start to make my multi-millions :cheesy: I'd like to know what I'm up against! Thanks in advance for any help.

1. Brokers are just that: they broke (facilitate deals). Although they can also trade as principal. They are your friend; if not get another broker!
2. No. They make commission from the value of the trade (UK anyway). Market Makers (Jobbers) make their money by running a book (like a bookmaker) and, yes their profit is their spread (Jobber's turn).
3.Some are (Avoid them)
4.No. They love a successful trader; More commission, more ideas, keeps your eye on the ball etc. Ideal client!

 

[alfonzo]

1. Brokers are just that: they broke (facilitate deals). Although they can also trade as principal. They are your friend; if not get another broker!
2. No. They make commission from the value of the trade (UK anyway). Market Makers (Jobbers) make their money by running a book (like a bookmaker) and, yes their profit is their spread (Jobber's turn).
3.Some are (Avoid them)
4.No. They love a successful trader; More commission, more ideas, keeps your eye on the ball etc. Ideal client!

Thanks Raysor - sounds quite positive. Much appreciated.

 

[alfonzo]

1. Brokers are just that: they broke (facilitate deals). Although they can also trade as principal. They are your friend; if not get another broker!
2. No. They make commission from the value of the trade (UK anyway). Market Makers (Jobbers) make their money by running a book (like a bookmaker) and, yes their profit is their spread (Jobber's turn).
3.Some are (Avoid them)
4.No. They love a successful trader; More commission, more ideas, keeps your eye on the ball etc. Ideal client!

Hi,

I've been thinking about this some more. Excuse the dumb questions but,

1. Still confused about who we are winning the money from (or losing the money to ) when we're trading, if not the brokers. It's not like stocks n shares where you actually buy something from the market then sell at a profit. As far as I can see we're not even buying a currency then selling it, as far as I can see we're only placing a bet for a pair to go in one direction or another, so who are we actually betting against, if not the broker? Sorry if I've missed the point but I'm confused!

 

[everyonerich]

Hi,

I've been thinking about this some more. Excuse the dumb questions but,

1. Still confused about who we are winning the money from (or losing the money to ) when we're trading, if not the brokers. It's not like stocks n shares where you actually buy something from the market then sell at a profit. As far as I can see we're not even buying a currency then selling it, as far as I can see we're only placing a bet for a pair to go in one direction or another, so who are we actually betting against, if not the broker? Sorry if I've missed the point but I'm confused!

you go to airport or popular tourist area, then look up for the currency exchange booth. you exchange your current money with some other currency, then hold if for couple of months/weeks or some period.

when the exchange rate has went up on the foreign cash youre holding now, then go back to the booth and exchange it back. you will get more of your local cash now. thats how currency trading work.. but its kinda slow, and usually they have more than 200 pips spread! lol

 

[alfonzo]

you go to airport or popular tourist area, then look up for the currency exchange booth. you exchange your current money with some other currency, then hold if for couple of months/weeks or some period.

when the exchange rate has went up on the foreign cash youre holding now, then go back to the booth and exchange it back. you will get more of your local cash now. thats how currency trading work.. but its kinda slow, and usually they have more than 200 pips spread! lol

Not as simple as that though. is it? When you go to the currency exchange you are actually buying some currency, then when you come back from your hols in a couple of weeks time you exchange it back and, as you say, make a profit or loss - I can understand that .
What I can't get my head around is you are only 'betting' against one other currency (ie a pair), and when you only open a 'sell' trade you haven't even got the currency to sell, you're just betting on its value falling against one other currency.
Basically, what I'm saying is that this isn't trading as I would call it, as you don't actually buy anything, you're just gambling that one currency will go in one direction against one other currency. Hence you must be gambling against the broker in some cases, who is acting as a bookmaker, or being matched up against gamblers betting in the opposite direction, by the broker.
Not knocking it! If I or anyone else can make money at this then good luck to them :cheesy:, but can someone confirm if my interpretation is correct, or if I'm totally missing the point?

 

[Shanghai]

Basically you are betting against the broker. However many other people are too. You may be going long on your trade and others may be going short on the same trade. The brokers will know what orders have been placed of course. Many times the longs and shorts cancel each other out and the broker makes his money on the spread. However if the broker is exposed to potential losses due to al the betting being one sided the broker may enter the market themselves so as to offset the risk.

 

[everyonerich]

Not as simple as that though. is it? When you go to the currency exchange you are actually buying some currency, then when you come back from your hols in a couple of weeks time you exchange it back and, as you say, make a profit or loss - I can understand that .
What I can't get my head around is you are only 'betting' against one other currency (ie a pair), and when you only open a 'sell' trade you haven't even got the currency to sell, you're just betting on its value falling against one other currency.
Basically, what I'm saying is that this isn't trading as I would call it, as you don't actually buy anything, you're just gambling that one currency will go in one direction against one other currency. Hence you must be gambling against the broker in some cases, who is acting as a bookmaker, or being matched up against gamblers betting in the opposite direction, by the broker.
Not knocking it! If I or anyone else can make money at this then good luck to them :cheesy:, but can someone confirm if my interpretation is correct, or if I'm totally missing the point?

always can get another price data from ecn broker, compare it to your live acc broker and see if the price has big difference or not?

 

[raysor]

Firstly, does it matter? It is quite complicated as to where the money goes to. But it is not a question of a beginning and end, it doesn't start and then stop and you add up the winners and losers. I thought you were talking about share brokers for my first answer. If you take a bookmaker or a spread bet firm they are running a book. The bookmaker has a guaranteed profit if he keeps his book level. The profit is built in to the odds. I.e. if you bet on every horse you will lose.If the book goes out of kilter say by someone placing a large bet he will lay that bet off. Likewise a SB will keep the book level and make money on the spread.
Where are the losers? Well we can see some big losers in Merrill Lynch et al but that doesn't mean the Investment banking system is a loosing business over time.For a start it must have "won" that money in the first place.
As I say unless you are thinking of setting up a SB company it doesn't matter. If you buy a loaf of bread in Tesco where does the money go? Some goes to profit, some to the bread manufacturer, some to pay wages and heating/lighting. Some may end up back with you if you or yor employers are in the Tesco supply chain!

 

[alfonzo]

Firstly, does it matter? It is quite complicated as to where the money goes to. But it is not a question of a beginning and end, it doesn't start and then stop and you add up the winners and losers. I thought you were talking about share brokers for my first answer. If you take a bookmaker or a spread bet firm they are running a book. The bookmaker has a guaranteed profit if he keeps his book level. The profit is built in to the odds. I.e. if you bet on every horse you will lose.If the book goes out of kilter say by someone placing a large bet he will lay that bet off. Likewise a SB will keep the book level and make money on the spread.
Where are the losers? Well we can see some big losers in Merrill Lynch et al but that doesn't mean the Investment banking system is a loosing business over time.For a start it must have "won" that money in the first place.
As I say unless you are thinking of setting up a SB company it doesn't matter. If you buy a loaf of bread in Tesco where does the money go? Some goes to profit, some to the bread manufacturer, some to pay wages and heating/lighting. Some may end up back with you if you or yor employers are in the Tesco supply chain!

Appreciate the answers guys. The only reason it matters is that I'd like to know whether the brokers have an interest in whether a trade wins or loses. If they don't all's well and good, if they do, it makes me slightly nervous . Sounds as though the ECN brokers are the ones to go with as apparently they don't bet against you.

 

[raysor]

Explain to me how someone bets against you. A market is a market, buyers and sellers. If you have the price you want to trade at then what does it matter that someone is "betting against you"?

 

[alfonzo]

If its my broker that's betting against me, I would have thought it matters? The neutrality is no longer there.

 

[raysor]

If its my broker that's betting against me, I would have thought it matters? The neutrality is no longer there.

You are talking about UK, yes? If it is a "broker" he will be acting as your agent. (unless he is dealing as principal and then he has to tell you. Under the FSA he must get you the best price, otherwise you sue him!
Are we talking shares, FX or what?
How does he bet against you?

 

[Shanghai]

I think alfonzo is talking about spread betting rather than purchasing the market directly.

Alfonzo I wouldn't worry too much that the spread betting companies are betting against you. Firstly you can check the prices against the market prices when you buy or sell so you can make your own judgment as to whether the spread is prohibitive or not. And secondly there is a lot of competition in the spread betting market these days and they would argue that they prefer it if their customers win as then they keep coming back again

 

[alfonzo]

I think alfonzo is talking about spread betting rather than purchasing the market directly.

Alfonzo I wouldn't worry too much that the spread betting companies are betting against you. Firstly you can check the prices against the market prices when you buy or sell so you can make your own judgment as to whether the spread is prohibitive or not. And secondly there is a lot of competition in the spread betting market these days and they would argue that they prefer it if their customers win as then they keep coming back again

Thanks Shanghai - yes that's what I was referring to . Sorry Raysor, probably not the best at explaining, said it was probably a dumb question!

 

[raysor]

Thanks Shanghai - yes that's what I was referring to . Sorry Raysor, probably not the best at explaining, said it was probably a dumb question!

There is no such thing as a dumb question, if you don't understand you must ask!
Otherwise I wouldn't have my website.

 

[gooseman]

simple: you place a bet with a broker. at that moment in that underlying (future, whatever) the bookie has bets placed already and so they have a net position. (long/short) as long as they hedge this correctly then they should keep their position neutral and make the 'spread' or edge. they may choose to leave a small long/short position if they have a view on market direction.

comprende?

 

[raysor]

simple: you place a bet with a broker. at that moment in that underlying (future, whatever) the bookie has bets placed already and so they have a net position. (long/short) as long as they hedge this correctly then they should keep their position neutral and make the 'spread' or edge. they may choose to leave a small long/short position if they have a view on market direction.

comprende?

Spose you bet the same way as they are?