Questions about brokers

[ziduan]

I am not a newbie, but still have not been able to find an answer about how exactly the brokers make profit.

I've heard of the zero-sum, the hedging, the manipulation of the price and so on. Is is possible to get a complete view? And does it mean that there is no risk for them at all?


(in particular, any info on UK based brokers? e.g. ODL, Alpari, CMC etc.)

 

[Rhody Trader]

The primary way brokers make money is buying from Trader A at the bid and selling to Trader B at the offer, when you're talking about dealers. They are market makers and operate in the same basic manner as market makers in every market do - the bid/offer spread.

Pass through brokers (ECNs) make their money from commissions.

 

[ziduan]

The primary way brokers make money is buying from Trader A at the bid and selling to Trader B at the offer, when you're talking about dealers. They are market makers and operate in the same basic manner as market makers in every market do - the bid/offer spread.

Pass through brokers (ECNs) make their money from commissions.

Assuming all of its (brokerage) clients are long GBP/USD, then what happens to those who were already in the a short GBP/USD position and wanted to exit their trades?

So is it better to use a dealer (market maker) than to use a broker?

 

[Rhody Trader]

Assuming all of its (brokerage) clients are long GBP/USD, then what happens to those who were already in the a short GBP/USD position and wanted to exit their trades?

If I'm following you correctly, you're asking where the buyer comes from for someone who wants to go short if all customer accounts are maximally long. The answer, of course, is the broker(dealer) takes the other side of the trade, which reduces it's short exposure from being on the other side of all those longs (which for the most part it has probably hedged in the market).

So is it better to use a dealer (market maker) than to use a broker?

No one right answer. It depends.