Forex Article - Brokers in the Jungle

There is something that all should understand and remember. The Forex market is completely without regulation where it really matters.

It is an unregulated market, and it is an irrevocable fact, that what we know as the 'Forex market' is NOT what you are led to believe it is. Do not for one moment think that what you read about, see adverts about and buy charts and fancy systems to beat - is the real currency market because - folks, it isn't.

The real currency market prices, rates and exchanges are nothing to do with what you see.

The market that you see is a 'contrived' market. Contrived by the brokers to make money. Yes - the prices are SIMILAR - on occasions, very similar to the real thing but they are not the real thing - far from it.

Shock, Horror !!!!!!!

You may ask WHY? What's the point in the brokers 'manufacturing' this contrived market when there's a real one. Well, there are a lot of answers to that question, but the MAIN one is that many of the brokers need an edge - to take your money off you.

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The prices that you see and trade are supplied by something called a 'data-feed'. Just go sign up with a broker (who is after all, supposed to merely a middle man - right?) and ask him if it's OK to use another company's data feed for your trades? Wiith very rare exceptions - NO WAY baby.

Brokers influence the prices to suit them - not you

By 'adjusting' their individual, sometimes shared, data feeds, they can lag and influence the prices enough to catch some traders out - and 'stop' them out, at a loss.

There's a lot more than this happening - but for now it will suffice if you understand that the playing field isn't quite level - and it sure isn't tilted in YOUR favor ;-) unless you deal with that relatively rare bird - an honest broker.

So first - let's realise that the broker is there to make money out of you, me and every other 'punter' out there. The way they are SUPPOSED to make money is the small commission we pay on every trade, called the spread. But that's not enough for many brokers. Here are a few other ways that they make money.

Almost all brokers pay a commission to people who introduce other traders. They call these introducers IB's (Introducing Brokers) You may have read about the company that trained me (FXTrainer from Canada) I paid $2000 and a rip off monthly payment for charts and chat room facilities that were costing them peanuts.

Not only was the company making an enormous amount of money from all of this - the brokers that they introduced us to - were paying them even more money. Between $200,000 and $330,000 a MONTH - as IB's.

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Where does that money come from? It comes - from us. Most brokers jack up the spread cost by a couple of pips per trade to be able to pay the IB commissions and still make the same profit level - on MORE people who the IB's have introduced.

The demo platform may NOT be the same as the real thing

Almost all brokers have brilliantly efficient demo trading platforms when you open a demo account. Many use a different data feed for their demo platform than the live ones and you get something I call, 'instant execution'. This means that if you click 'submit' to enter a trade - it's instant. And when you want to take your profit and close the trade - it's instant. That's the way it's supposed to be.

So you practice in your demo - and you get used to everything and you are ready to go live. As soon as you put real money into a live account, in any quantity, you'll notice that the 'instant execution' element has subtly changed.

For instance - you want to enter a trade that you see is going up like a train - and you want to get in on it. You click submit - and there's a pause of maybe seconds - or even fractions of a second. In that brief time, the currency just went up 10, maybe 20 pips - 10 or 20 pips EXTRA - that you would have put in your piggy-bank.

You could be looking at a losing trade - so you click the button to close the trade and just a small wait before execution, can cost you, anything from a few to 20 pips - a longer wait can cost you a LOT of money.

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This practice is called 'slippage'. Once again, there's a little more to this than I've described - but you'll get the idea, I'm sure - more profit for the broker.

There is yet another, more insidious way that brokers take money off new people - it's to do with offering enormous leverage on your account - up to 400 to 1. Doesn't it sound great - the BIG HEARTED broker - is offering you 400 to 1 leverage - boy is THAT generous?

You now know - don't you folks, and if you didn't, let me tell you, that 400 to 1 - without a money management strategy can mean staggering losses and complete failure in an average of 90 days. And sadly . . people do not REALIZE - why they lost their money?

Be really careful out there when you pick your Forex Broker. Of course there are 'good guys' out there - but please remember that old maxim - 'all that glitters, is not gold.' Sharks do gather where there are rich pickings, and it IS the internet after all.

This article is not meant to frighten you off. Many people make great, regular money and completely change their lifestyles because of Forex, but more people lose all because they did not do due diligence.

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