May 7, 2009
Learn More About Forex Brokers
You as a retail forex trader need to understand that forex brokers are in the end above all marketing machines. Since more than 90% of the new traders dont survive long and give up trading after losing their hard earned money, forex brokers need a constant flow of new clients.
For enticing new clients, vast sums of money are spent on advertising by forex brokers. You can check this fact by going on Google and typing any forex related keyword. Almost all the ads will be by forex brokers. Each click costs them around $1.
Most popular way used by forex brokers to make you trade more and more and burn your money is to announce monthly Forex Trading Contest. Cash prizes of $2000, $1000 or $500 are announced.
This is like a lottery, only three win. The more you trade in order to win the contest, the more money your broker makes.
Forex brokers are free to offer any price to their clients. Most of the brokers get price quotes from the interbank market with a 1 pip or even lower spread. To this pip spread they add 2 or 3 or even more pips as the price quote to their clients.
Just imagine by acting only as middlemen between the interbank market and retail forex trader, forex brokers make risk free profits of 3 to 4 pips on a round trip trade.
There is a practice used by forex brokers called Price Shading. For example, if the broker is convinced that Euro is on an uptrend and its price is going to rise, the broker will shade his price quote slightly higher to take advantage of the likely increase in Euro price.
One of the best tricks that forex brokers use is Stop Loss Tripping. If they find many stop losses at a particular level, there will be a momentary blip in the price feed to take out most of the stop losses.
The blip was so momentary that you cant do anything. It was a momentary spike, so small that you could not trade but enough to trip the stop losses.
Since, there is no central exchange to compare moment by moment prices, your broker can offer any excuse like there was sudden large order in the market or the broker feed is much faster and reflects true interbank rates.
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