If you are serious about starting forex trading than you should know the games youre your forex broker can play with you. Most of the small forex traders dont know these facts and are easily taken for a ride by unscrupulous forex brokers.
Retail forex market is new and different from forex interbank market. Forex interbank market is only open to big players like banks, corporations, hedge funds, pension funds and other institutional investors and deals with large currency transactions.
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.
Know these games before you start your forex trading. The following facts can help you understand some of the games that can be played against 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.
Leverage: Forex brokers let you trade forex with a high leverage like 100-1 or 200-1. Rather they will encourage you to use more leverage. Using leverage allows you to make high gains with a small price movement but it destroys you when you are on the wrong side of the market. Since most of the forex traders dont know how to trade. Giving you high leverage lets your broker gain when you lose.
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.
Unfair practices: Just like Casinos, Forex Brokers dont like winner. If you are winning too much, your forex broker may resort to denying the service to you or complicate execution of your trades so much as to make it impossible for you to trade.
Visit my Blog for finding a Forex Broker Scorecard that can help you in choosing a right broker. You also need to know what type of questions you should ask.
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