Forex Broker Tricks

22 January 2012
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Many people start trading forex without knowing the games their forex broker can play with them. Choosing a right forex broker is very important for you. Don’t get stuck up with an unscrupulous forex broker. Know the tricks a forex broker has for you.

Retail forex market where small traders like you and I trade forex is different than the interbank forex market. Interbank forex market is where big banks, corporations, hedge fund and other institutional investors exchange currencies. It is only open to big players.

With the advent of internet, retail forex trading became popular. Forex brokers work as intermediaries between the retail traders and the interbank market. Forex brokers popularize retail fx trading by offering online margin accounts. But beware retail forex market is not highly regulated. Due to poor regulation forex brokers can do what they want with immunity.

You need to know the games; a forex broker can play with you. If you don’t know what games a forex broker can play with you, you will never succeed at forex trading. Understand how the broker can trick you:

Pricing is Not Transparent: Being an OTC (Over the Counter) market, forex broker can quote prices that may not be fair but you have accept them or choose another broker. The prices that your forex broker is going to quote to you, is the price that you will get. You cannot do anything about it.

Use of Leverage: Your forex broker will love you to use a high leverage like 100-1 or 200-1 in your trading. Since most of the small forex traders are unsophisticated, they easily overexpose themselves and get wiped out in the market making gains for the broker in return.

Brokers try to trade against you: Forex brokers act as an intermediary between the retail trader and the interbank forex market. Since most of the retail trades are too small in size and cannot be immediately offset in the interbank market, forex brokers get the opportunity to trade against you. If you go long, the broker will go short and if you go short, the broker will take the long position. As most of the retail traders are not good traders and lose most of the time, forex brokers make profit from this.

Practices that are unfair: Forex brokers and Casinos have the same mentality: they don’t like winner. If you are winning too much, the house will be stacked against you. Your forex broker may make the execution of your trades very difficult or start denying the service to you. Your trade may not execute due to slippage. There are many games the broker will play against you so beware.

 

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Once you know these facts, you can use a scorecard for evaluating different forex brokers. Bill Poulos, a veteran forex trader has developed one for you. Visit my Blog to read about it.

Author: Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in stock and Forex Trading. Read more about Forex Broker Scorecard: http://forex-or-stocks.blogspot.com/2009/03/forex-broker-scorecard.html 

 

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