FOREX market is the largest financial market in the world and also an unregulated market. Even expert traders can’t predict this market accurately. Some factors that affect the foreign exchange market, mainly, political stability, interest rates, imports, exports, economic growth of the country, and monetary policy. A forex broker works as an intermediary between the forex trader and the interbank system. Interbank system is the term that refers to the networks of banks that trade with each other. Forex brokers offer a price from the banks of which they have lines of access to liquidity and credit.
So, do FOREX brokers lose money? It totally depends on the type of broker you are dealing with. If the broker you are dealing with plays a direct counter to your every trade, this is, when you win they lose. But, most of the brokers do not do this so they trade their own accounts and make money from fees and commissions.
As a trader, you need to choose the right broker who can provide you proper information and give some guidance about trading. If you are a beginner and want to start investing in the foreign exchange market, first, you need to know the broker you have selected. It is not recommended to start investing in this market without knowing its basic concepts.
To learn some basic concepts of this market, you can also try out a forex demo account. Demo account is offered by different trading platforms and by some broker. You can also test out the service provided by your broker with the help of a demo account.
A trader should take a decision about forex trading, with a logical mindset, not an emotional mindset. Many times, traders take decision while they are greedy or fearful. Hence, you should take the trading decision with logical mindset. As a new trader, you can also start with a micro forex account or micro lots. It helps you in learning the forex trading practically. Demo accounts are not so effective because demo losses do not feel real. Demo accounts money is not real, they are funded with fake money.
Now, we should know what kind of brokers lose money and how they lose money? Whether a broker loses money or not, it totally based on the type of a forex broker. So, which types of brokers lose money?
Dealing Desk Broker (Market Maker)
Dealing Desk Brokers are basically a market maker. Dealing desk broker take the opposite side of your trade. Yes, market makers earn when a client loses. In short, Your loss is their gain, their gain is your loss.
There are also advantages of trading with dealing desk brokers or market makers. They are:
- Fixed Spread
- Likely to Trade Nano lots
Fixed spread tends to be fixed, it doesn’t fluctuate too much. This is the best option for new traders in adopting risk management.
You are likely to trade nano or micro lots with the help of market maker or dealing desk broker. It means you can trade very small. So, what’s the importance of using trading nano, micro or mini lots? As an inexperienced trader, you can gain knowledge about the forex market by using nano or micro lots. Hence, it reduces the risk of losing money for you.
As we all know demo accounts are not much effective for new traders in practically learning to trade, it is limited to basic knowledge of that concept. Hence, nano lot trading is the way through which a brand new trader can go deep into the forex trading market. It helps traders to adopt a risk management skill. Risk management skill is very important, when a trader opens regular live account, there is a need to have a risk management skill for trading.
They take the opposite side of your trade but it not illegal at all. This is the way they run their business. It is better to deal with market maker only when you want a micro account or fixed spread account to improve your knowledge about the market.
The genuine broker will always care about your trading results. So, choosing the right broker is very important before entering into this market. If you have found a broker randomly, without doing any research, there are more chances you lose your money in a short span. Another type of broker is:
Non-dealing Desk Broker
The non-dealing desk is divided into two categories:
- Straight Through Processing (STP)
- Electronic Communication Network (ECN)
The difference between STP and ECN, an electronic communication network gives direct interaction with liquidity providers and with other electronic communication network participants. In Straight Through Process (STP), it’s unlikely that you can trade with nano or micro lots.
So, the above mentioned are the two main types of brokers in the forex market, namely, Dealing Desk Brokers (Market makers) and Non-dealing desk brokers. Another important question here is, Do forex brokers actually want you to succeed? Here is the answer:
Do Forex Brokers want you to succeed?
Well, it depends upon the type of your broker and also the type of a trader a broker has got. As we have seen, there are two main types of brokers are there: firstly, Dealing Desk brokers which are also known as Market Makers and secondly, Non-dealing desk brokers.
Dealing desk brokers are those who trade against you, but they can also provide you with micro or small lot trading and can provide fixed spread accounts. Whether a broker wants you to succeed or not is totally depends upon the type of a broker.
If a broker is genuine and wants you to become a long-term trader, he will surely want you to succeed, so that he can earn profits and commissions from you for a longer period of time.
Brokers approach the client/trader according to their type. If you do not carry proper knowledge of trading, they will surely want you to lose everything and keep making deposits. If you have a good amount of knowledge about trading and you’re good at it, they always want you to place the biggest trade possible and as frequent as possible, so that they can collect their commission from your activity.
So, whether forex brokers lose money or not, it totally depends upon the type of a broker. If the broker is a market maker, he will play against you. In short, your loss is their gain.
So, which type of forex broker you should choose, ECN, STP or Market maker?
Dealing Desk/ Market Maker is the best option for brand new traders. Because, as a brand new forex trader, you must be aware of all forex market concepts and should have the ability to do risk management. Generally, new traders take a decision when they are in emotions, fear or greed. So, dealing desk broker help you in starting forex trading at the micro level with small or micro lots.
Non-dealing desk broker is the best for day traders, who try to fight for every pip in the market. Non-Dealing Desk broker will charge you a commission on every trade. Hence, forex traders are mainly divided into two main categories which are mentioned above.