As a forex trader, you may have heard many negative comments about brokers accusing them of different unethical actions. Some people believe that brokers don’t have their clients’ best interests in mind and don’t want them to win. So, do forex brokers want you to lose?
Not all forex brokers want you to lose. Since they make money through spreads and commissions, they naturally want you to win and trade more. However, dealing desk brokers (market makers) who trade against their clients want them to lose because their win equals their clients’ loss.
In this article, we’ll talk about why brokers want you to win. We’ll also explain which brokers want you to lose and why.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Why Would a Broker Want You to Lose?
If you want to know whether your broker wishes you to lose or win, consider how they can profit off your trades.
Forex brokers are middlemen who pass trades from retail traders to liquidity providers with access to the real market. No transaction occurs between the trader and the broker. Forex brokers earn their income through spreads and commissions.
So, no matter if you win or lose, they receive spreads on all of your trades. That’s why they seem to care more about the number of traders than who wins or loses. They try to keep you in and encourage you to trade more by offering more incentives.
For example, they provide leverage so that you can trade more than what you afford. If you win, you’ll be willing to do more, leading to a win-win situation for both you and the broker.
Brokers try to help their clients by offering educational courses, too. This way, they help traders gain the skills needed for successful trading. They try to polish their clients’ knowledge by posting regular blog posts and informative content on their websites and social media pages.
They also help their clients better understand the platform by including demo accounts. This way, they allow novices to work on a simulated version of the platform stress-free. Even experienced traders can benefit from these demo accounts by trying their new strategies on them.
Others ensure their clients’ success by helping them identify their problems. Reputable brokers have automated systems to analyze trades and give insights into what traders can do differently. They help you reduce risk, increase profits, and lower stop-losses.
Brokers even help you identify the market direction and the best entry points. These strategies indicate their clients’ profit leads to their own profit.
What’s more, what trader is more likely to stay with a broker: a winner or a loser? Most forex traders, especially beginners, can’t survive the first losses and drop out of the market. So, a broker’s best interest is to see their client win and continue making trades.
Yet, not all brokers want their clients to succeed.
What Kind of Brokers Want You to Lose?
As we mentioned, forex brokers’ main source of income is the spreads they charge on each trade, but some of them don’t seem to be content with that and try to find other income streams. One of them is trading against their clients.
Knowing what kind of brokers trade against you is a good way to avoid them. Generally speaking, two types of brokers exist.
Dealing Desk Brokers
Dealing desk brokers are also called market makers. These brokers are providing a market for their clients. They take the opposite side of the trade and act as the counterparty to the trader. It’s not that the dealing desk brokers don’t have access to market participants. They connect traders to the real market traders, but they choose which orders to send and which ones to keep in the house.
In this sense, there are two types of clients:
- A-book clients are those who the brokers decide to connect to the market. Since the broker routes the order directly to the market, there’s no conflict of interest, and they don’t care if you lose or win. All they care about is how frequently you execute trades with them. A-book clients are typically successful and profitable traders that brokers don’t want to trade against.
- B-book clients are those who the broker decides to keep in the house by internalizing their orders. They’re usually newcomers that the broker is sure they’ll lose. So, by trading against the trader, they make a profit. That’s when your broker wants you to lose because there’s a clear interest conflict.
Non-Dealing Desk Brokers
Non-dealing desk brokers send trades to banks and other major financial institutions known as liquidity providers. This way, they offer their clients access to real market participants. They work as pure middlemen who only send trades and don’t make a profit through your loss. They try to help their clients by getting prices from all liquidity providers and giving their clients the best ones.
Non-dealing desk brokers come in two types: STP (Straight Through Processing) and ECN (Electronic Communications Network). Both of them use electronic systems to route orders to liquidity providers. They only differ in commissions and spreads.
However, make sure the ECN broker you choose to work with is a genuine one. Many brokers claim to be ECN brokers but are market makers. Choosing a trustworthy broker is one of the most important parts of forex trading, so do your homework before investing with one.
Choosing a Good Forex Broker
You can’t trade forex without a broker. Given the importance of having a trustworthy and reliable broker, look for the following before choosing one:
- Broker type: ECN brokers are the best option because they don’t have any vested interest in you losing the trade. Plus, since they use electronic networks, they’re much more reliable.
- Regulation: Open an account with a broker regulated by major regulatory bodies in your country. In the US, CFTC and NFA are the regulatory bodies issuing regulations for forex. Although forex regulations aren’t as strict as other markets, these regulatory bodies ensure your broker follows the industry standards. After all, you’re giving your hard-earned money to them, so you need to ensure your funds are in a safe place.
- Fees and commissions: If you’re a prolific trader, especially in day trading and scalping, you spend a significant portion of your investment on trading fees. So, look for brokers that offer competitive prices, especially on major currency pairs. Variable spreads can also increase in high-volatility situations, so seek out fixed spreads.
- Additional perks and tools: Brokers who want their clients’ win offer additional tools to help them succeed. Look for free trading platforms, tutorials, market analysis tools, and market sentiment signals.
- Strong team and customer service: If the broker lacks a strong team to help clients with their problems, any issue that comes up due to technical issues can lead to your loss. A reliable broker should have excellent customer support and be available any time of day.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Forex brokers play critical roles in their clients’ success, providing them with trading platforms and connecting them to the market. They earn their income through spreads and commissions.
Naturally, since there’s no conflict of interest with the trader, brokers don’t care if traders win or lose. However, some of these brokers profit when their clients lose. Those are market makers who take the other side of the trade and open an opposite position to the trader.
That’s why forex traders should always look for trustworthy and reliable brokers who have their best interests in mind.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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