Retail forex brokers business
How many times did you heard kind of offers like free signals, free education, free financial analysis, broker’s analysts services, sign up $1000 bonus, zero spreads, no commission etc? Once and forever you should understand, forex business it’s a business first so no free food in there.
Forex brokers must pay for infrastructure, hardware maintenance, software licenses, staff, services, market connection.. and no doubt you will pay for it.
A / B booking models
There’s two trading execution models of brokers and this is the differences:
A book is direct market access so the broker just sending your orders to A dealer
B book is in house execution so your orders are looping nowhere
Till your broker working only for commissions or spreads and swaps it doesn’t matter which booking model do they have but there’s one thing called conflict of interests and that’s the cause of all problems.
In the traders world there’s greed problem this thing is making you loser in your trading and this is the biggest problem in the brokers world also.
The brokers who cheating their clients also the losers in this industry. That’s why:
A book brokers interested only in the commissions and as long as you trading they are making money from your trades execution. The more profitable clients they have the more money do they making. That’s why this type of brokers love scalpers who trade frequently because this is more commissions in short period of time for them.
B book brokers have conflict of interests with you because if you making money – they are loosing money and vise versa. Your trading balance in their company just a numbers since you sent your money to the company this money not yours already till withdrawal to your bank account. That’s why the withdrawal process in this type of brokers takes so long time and sometimes have additional commissions with many problems.
By statistics 95% of traders are losing in trading part of it is the fault of the B brokers they are paying for introduces, gurus, masters who advertising forex trading as easy game, get rich quick scheme for newbies in this industry. And B booking brokers using this statistical advantage to make more money from losing 95% and paying profits from this money the remaining 5 percent of profitable traders.
BUT how they can maximize their gain from this situation?
That’s why they’re using hybrid booking model what it means:
This is B booking but the profitable 5% of traders are linked to the true A dealer connection so in this model all kind of clients making money for the A/B broker, losing traders simply giving their money to the broker company and profitable traders are making profits and paying the commissions and spreads. And this type of the brokers the common in this industry.
Why this happens?
Because they can despite regulation and investigations this is huge money. And brokers software suppliers are making this shit happen using their trading soft. Yes this is not the software are made for and by default this features are turned off in the trading servers and honest broker doesn’t using this for sure.. but WTF? they surely can and they do.
What kind of software and features I’m talking about
Meet the Virtual Dealer Plugin for metatrader server platform this is from official manual:
Virtual Dealer Plugin is intended for full or partial emulation of the dealer’s actions for symbol groups with manual execution.
The plugin implements the following features:
• Confirmation of the clients’ requests with regulated execution delay up to 5 seconds and recheck of Limit & Stop Level
and Freeze Level.
• Processing of pending orders activations, Stops triggerings, and stopouts.
• Confirmation of requests on stream prices (Instant Execution) with adjustable permitted slippage.
• Watching symbol gaps, during which pending orders BUY STOP and SELL STOP and stops of open positions are
activated not at the client’s requested price, but at the gap price.
• Automated moving up the Limit & Stop Level and Freeze Level according to the preset list of news time.
• Disabling (setting, modifying, deletion) of pending orders during news receiving.
• Working in parallel with real dealers. In this mode, only those requests are processed the volumes of which do not
exceed the preset level
There’s companies which selling kind of software for new brokers for example Ltecindia
This is straight from their site:
LFT Virtual Dealer is a tool for Forex Brokers to manage B Book. The tool uses Manager API to deal the trades so can be used by a White Label without access to the MT4 server.
- White Label Friendly
- Supports different actions based on different rules
- Each rule contain
- Volume Min
- Volume Max
- Order Types
- Buy/Sell Market
- The action can be instant execution or delayed execution delayed by xx ms.
- Supports delay time between 10 MS to 10000 MS.
The Risk Manager aims to simplify the risk management for B Book and A Book by copying only those trades that are not fully hedged in the MT4, thus making it very cost effective way of managing risk. The Trade can be copied using MT4 terminal as well as FIX or any other proprietary protocol.
- Ability to Copy trades specific to groups and Symbols
- Supports copying trades from specific accounts
- Supports Symbol Mapping
- Works in two Mode – Copy and Hedging
Market maker price manipulation
The other chain in this business is banks this institutes have volumes of money and able to move the price in wide range. Despite financial regulators they are can organize sneaky business of roping broker’s clients. Lets take a look for the example:
this video was created by FCA UK regulator exposing price manipulation of institutes against their clients
And can you please tell me do you have risk manager in your client’s trading platform?
And the straight up why we are here and why we making software to trade forex market because trading platforms are made for brokers not traders.
Automation and risk management software must be in the tool box of every profitable trader. For those who love naked trading and trust your money to the brokers – you are really naked in front of your broker’s risk managers and their server’s side software this is the reality we are in. Probably you are lucky and you have found a honest big regulated broker congrats but you still doesn’t have automated risk management in your client’s platform but your broker does and every shit brexit happens situation or non market conditions their software will protect not your money for sure. Choose your broker better, guys!
Good trading. See you.