Home Trading Strategies The Truth About Forex Brokers (This is What You Must Know)

The Truth About Forex Brokers (This is What You Must Know)

The Truth About Forex Brokers (This is What You Must Know)

hey hey what’s up my friend so in today’s video I’m gonna reveal to you right the truth about forex brokers which nobody tells you okay so number one not all forex brokers are created equal they have different business model the way they charge the way they earn and this is something that you must know so generally forex brokers they fall into one of two categories number one is what we call a non dealing – broker and ecn electronic communication network and the other is what we call a dealing desk broker otherwise known as a market maker so let me explain in details right what this means for an on dealing desk broker they claim that whenever you put in an order with them right they simply what I do is they ship your order they bring your order in to the interbank market what is the interbank market the interbank market is where the big players the big fishes the Sharks they trade with one another right this I usually know banks hedge funds mutual funds this is where they come together in a private network right and trade the FX markets together and because we the trader the small fries that it can come out of it humbly surrender the small little fishes okay we are nowhere as big as the big fishes this is why you know we need somewhat of an intermediary like a broker to help us facilitate our trade and this right if you ask me I say that it’s a little bit fishy I have my doubts on this and I’ll tell you more why later right the second type of broker is what we call a dealing this broker so a dealing des broker is where you know you put on the trade okay with the broker and the broker is the one that makes the market so your order don’t reach the interbank market the broker is the one that creates a market for you so if you buy the broker is the one it takes the opposite side of your position a broker would sell so this is how you know you get liquidity right by having the broker to trade against you so usually how they manage right this business model is that if you’re losing trade or you have your yo-yo your records right what they usually do is that they will take the opposite side of your tray do you know what a color counter traded by the broker if you buy they sell if you sell they buy so do just you know trade okay dude this is what they do for losing traders for winning traders alright what they do is that they will usually try to hedge their position so if they know that this trader is consistently profitable if he’s by all right I don’t want to be you know selling against him because he he’s a profitable trader what I’ll do is I’ll try to take that position and match it with another trader who is selling so this way right the position is kind of neutralized so there’s like no risk to the broker if they can do it right then they will hitch them the position may be true the interbank market right or with other liquidity providers so this is what we mean by a dealing desk broker your order does not go to interbank market right usually that’s one of two things right where is you know a trader gains by the broker or they will hedge it or match it with other traders so now how do you tell the difference and oh by the way if you are watching this video for the first time you’re enjoying in right hit the thumbs up button right this way you’ll always get updated right whenever I publish a new video if you don’t enjoy this video hit that thumbs up button anyway so I have time to convince you that hey this is a good video okay so how do you tell the difference non dealing death broker right they charge a coming shown on every trade so for example you know you put on the trade right they say that every trade right you will get charged they’re like seven dollars right that’s a commission right you notice that that spread is usually lower in the realms of loan for example euro dollar can be like 0.

1 0.2 pips that’s usually from easier not non-healing this broker and they usually have minimum size like you know one micro lot or one mini mini lot or even one standard lot on the other hand right dealing this broker otherwise known as a market maker they usually have no Commission they just charge you the spread and it does not mean that they are cheaper because they are spread right it’s usually higher than an ECCN broker so for example euro dollar buy from an ECM broker is about maybe you know point to pips for example a market maker they will charge you about one or one point two pips so we can see that a spread is higher and for market maker right one thing you’ll notice is that they have no minimum size so you can even trade Nano Lots like maybe you know a micro lot is a thousand units market maker my even let you trade half a micro lot like you know 500 units 758 unit yes they actually allowed there so when you are able to trail I know those weird fractional size numbers you know that you’re trading with a market maker and to be honest right there’s no right or wrong here this is just a business model it’s not a no you’re out trying to get you right or they’re trying to no rip you off no it’s just yeah business models right these two different business models and as I was saying right I have my doubts over here okay so my doubts is on the easy and a non dealing this broker because if you recall right theoretically a non dealing this broker they are supposed to just take your order and link it with the interbank market but here lies a question that I have that I’ve not you know figure out yet is that the average transaction size on the interbank market is about five million dollars so if you put that in lot size perspective the minimum size that is being traded on the interbank market it’s about 50 lots one time right because one lot is a hundred thousand units Mahara thousand dollars you multiply by 50 it’s about five million dollars so the average a lot of sites on interbank market is 50 lots and if you trade with a broker broker who claims that they’re easy n they might let you treat one micro lot or even one mini locked in to me that doesn’t make sense because if that one mini lot goes to the interbank market who is the one on the opposite end of the trade right to be accepting that one mini lot because if I’m a bank I’m managing you know billions of dollars one mini lot is $10,000 that comes it is like a small fish right it doesn’t matter to me because a lot size is too insignificant right to be worth trading with so this is my doubt right when I say that you know when a broker claims to be an easy end I have my doubts over here because again I don’t see how the small order can reach the interbank market right and be a setup right by the liquidity product providers because it’s usually too small okay and I have thought about it and there are two possibilities number one is maybe the broker they have special arrangement with the players in the interbank market like say okay maybe you know I am willing to accept like you know one mini law or you know a 5 micro lot and stuff like that that might be one possibility the other possibility is that a broker pull all this orders together and then send it to the interbank market that is not a possibility right but as mentioned I have my doubts over here that when the broker claims to be a real easy and a true easy end and the back of my mind I’m like I’m not quite sure all right so it is something that you must know and I want to share with us well okay so the first thing is that not all forex brokers they are created equal number two forex brokers don’t want you to blow up your account so I know this sounds contradicting it’s an irony because you always heard on internet other brokers they are trying to repeal of the trend you know get you to blow up your car because you know the trade against you you blew up your account the more money they make but if you think about this right if you think about it right in the long term right for brokers who are looking to be in business for next 10 20 years if you blow up your account fast there’s no way they can you know so-called milked any more money from you let me give you a example right so this is a term right which are I learn right from you know people who who runs business-wise they said there’s a thing called lifetime value a lifetime value of a customer so let’s say for example a trader let’s say trader ear right he gets so called ripped off by a broker okay and he puts in a $500 in his trading account maybe the broker you know goes again Seymour I hunt his stop-loss you know whatsoever and he loses day at $500 he blows up so the broker technically he makes $500 of the trader who lose that trading account right because if let’s say they adopt a market maker model they trade against you the trader who loses 500 the broker would profit 500 rollers on the other hand right let’s say there is a legitimate broker who doesn’t want you to blow up instead right what it does is that on average every time you put on a trade right there in a spread let’s see the spread each time they earn is let’s say let’s put it let’s say five dollars right each time they’re in the spread whenever you buy and sell they and five dollars and let’s say you know you are a consistently profitable trader you’d put on many traits over the years let’s say you put on like let’s say a thousand traits 1000 rates so you can see that a thousand traits this is like the number eight order to put it let’s make it eight then right let’s say you put on a thousand and eight traits okay over a period of two years so a thousand and eight traits you multiply by five as the the spread right which is what your broker would earn you can see that there are earnings right if my maths off me right there bro code five thousand and forty dollars over two years of trading so can you see that if you blow up your trading account if your broker so-called cause you to blow up your trading account they pretty much make that five hundred all this one time in that’s it right and the trader you know move on Wells wait doesn’t want to treat if their broker anymore but if you trade long with the broker right every time you put on the trade right you treat long you’re consistently profitable the broker can always get a small piece of the pie from you consistently every time over the years you can see that the broker would make much more money in the long run so this is what we call lifetime value right every customer there’s a lifetime value to it okay so in essence right the longer you trade the more money your broker mix and those brokers who who treat this as a legitimate business not those fly-by-night no white label brokers no those legitimate brokers who are serious about this business they want you to treat longer because they know that the longer you trade the more they’ll make and the longer you trade right chances are the size of your account would increase as well you’re adding more fines again the more they make so this is why brokers they don’t need to blow up right because once you blow up you give up that’s it they can milk you anymore game over okay so this is the true Friday you know most traders who never tell you they always aim broke as a bad what really broke us they do want you to succeed as well especially those brokers who are looking at this from a big picture point of view from the long run point of view okay mix one right brokers don’t hunt your stop-loss why is that so as mentioned right the previous slide brokers they want you to succeed so why would they want 200 stop-loss caused you to lose and then you know they risk losing any future business with you and the other reason is also because in these days in a trade a trader can just pull up to chatting platform empty for whatsoever and see the price feed on these two platforms and if there’s any discrepancy if this one you know broker who purposely no hand the stop-loss a trader can just you know screenshot screenshot it share it on video I mean a record on video publish it on social media social media and the brokers reputation is finished it’s tarnished so we can see that from a risky what point of view from a broker’s risk reward points of view trying to you know hand a small retail traders stop-loss and then the risk of losing his reputation losing the license they’re losing everything doesn’t quite make sense so this is why brokers don’t really hand your stop-loss they don’t usually do that what happens instead is that you get stopped out is because your stop-loss is at a level where the institution the hedge fund the spot money tries to come dead level so I’ll explain this in more detail so let’s say for example okay let’s say this is a chart okay let’s set a price up and down like this and it’s a hovering somewhere about here so at this point okay alright this is a as you know this area of resistance let’s call it R and this is support at this point right the smart money the institutions they know that let’s say they want to sell right it can’t simply just sell at this price level why is that that’s because they are transaction size is so huge if they sell if they shot it would lead to a strong decline in price so they gotta be tactical about where they sell and where they buy so for in this case or if they want to sell what they would do is that first they will push up the price higher like this right push up you know why are they doing this well if you think about this right this is an area of resistance and traders who are short where would they put a stop loss they’ll put a stop loss at birth resistance so let’s say it’s about here okay and if you are sure and you have your stop-loss above resistance what type of order is it well it’s a buy stop order right a buy stop let’s call it BS it’s not this is not BS right is a buy stop order okay it’s a buy stop order so so let’s see it again remember the smart money the institution they want to show and it just kind of shot and any naked price because the market would move right due to their large size but if they know that there is a cluster of buy stop orders above their size now they can start to buy and push the price up higher and as the price goes up higher it would trigger this cluster of buy stop orders so this is where they can actually put in there real transactions transaction size to shut the market so if they shut the market what other is it it’s a shot position right can be a sell Amina shut position whatever it is looking to short so when a shot at this level this area of resistance and it triggered this by stop others what happens is that the by stop others will be neutralized by the selling pressure from the smart money so what happens is that the market price will not just collapse like this because there is buying pressure to support this selling pressure by the smart money okay so this is what is going on right now the institution and they just can’t sell any price they have to be tactful about where they are selling so they have to know you know levels where there are other fluid where there’s liquidity right to Cravero is the pressure that they are putting on the market so in this case all right you can see that if your stop-loss is above this highs transit size you’re gonna get stopped out at surprise hit tire and then reverse from here right this is where against my money they can shot without putting too much pressure on the market because there is a buy stop order here right that will neutralize the effect okay so this is what I mean by you know institution and hedge funds the other thing that I want to share with you is major news release right this is another event right that might cause you to get so called you know getting stopped out of your trades so let me explain during major news release right you would notice that the spread tends to widen why why why okay so it’s because before major news release right the big players in the market they’re pulling out the orders because there’s uncertainty in the market they do not know whether the news would be good news or bad news so what I do is they pull up their orders in the market and when you get orders being pulled out of the markets there is a gap a liquidity gap if you look at the if you have a chance to access the the depth of market right they call it B order flow you look at the DEM of market notice that the letter it’s empty because the orders are being pulled up so when the orders are pulled out when the dev of when the dev of market is empty what happens is that the spread widens I sort of bid and offer the price right there’s a huge gap in between that’s why the spread widens so if the spread widens on the interbank market in the futures market what is gonna happen to the spread on your retail platform well it’s gonna widen as well because the prices on your platform right pretty much tracks what’s going on on the interbank market so your spread widens as well it’s not because your broker wants to purposely white on your spread no they’re just protecting himself right from from arbitraging opportunities right so this is why your broker also widens the spread and usually white it a little bit more to you know have a little bit more protection so if let’s say the interbank market a spread is 10 pips your broker might widen it to 20 pips and so this is why the spread right and so when the spread widens right what happens is that all you need is just a little bit of order in the market like you know a few Lots to push the market and you can swing Wally so this is why doing no big news even like NFP you see very big spikes like this right like let’s say you know let me just do this let’s say prior to NFP the market goes normally up and down but before it knows just to you know quieten right just before you know enters the news release period and when the news release is usually spikes up spike down and then it goes back to normal so why why the market can you know spike up spike down so aggressively just after the news releases because again right you don’t need much order to push the market up and down I think this is not not a very good example let me just redo this okay let’s say the market before the news it moves something like this right normal price movement then when it comes close to the news time it goes quiet right then news releases spikes up spikes down like that and goes back to how it’s you know moving previously so the reason why you get this huge spike up and down is because you’re doing it much order to move the market let’s have sit right the lack of liquidity in the market you’re putting on one or two Lots right the market is gonna the price gotta fly up and down just like that so again if your stop-loss is just above this highs below this loss or you know beyond any you know common levels right chances are you’re gonna get stopped out and it’s not because your broker is hunting your stop-loss but is this because of this new natural law of the market structure itself right away you know the market the way the prices moves okay so I hope this kind of it don’t make sense to you so let’s do a quick recap right number one not all forex brokers are created equal right their business model is usually either the EC N or market maker and I also shared with you that I have my doubts about you know brokers who claims to be easy and because I just don’t see how right that a small order can you know be linked or just be you know router to the Dabangg market where all the big players are trading right I share two possibilities but again right I could be wrong so just something to share with you and also forex brokers they want you to treat longer the more you trade the more they make right every customer there is a lifetime value to it right if you stay longer they can always see no sort of like you know milk you right or under spread right consistently over the long run and it’s much more profitable than just you blowing up your trading account within a short period of time and then finally we talked about in our brokers they don’t usually hunt your stop-loss usually you get stopped out is because you put it at an obvious level or is it because there’s a major news release right and that’s why you got stopped out all right so with that said I hope you’ve enjoyed today’s lesson right if you’ve enjoyed it hit the thumbs up button and subscribe to my youtube channel the button is below click Subscribe and any feedback comments let me know below and I’ll do my best to help with that’s it I wish you good luck and good trading I’ll talk to you soon you


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