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Chapter 38, Part I. Some Talk About Brokers. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: In fact, if you are a positional trader, make trades rarely and hold positions for a long time – spread will not be a significant issue for you. From another point of view – if you’re scalper and trade with huge position sizes you will prefer tighter spreads and some fixed fee per trade, that will not depend on trading volume.

    Pipruit: I’ve heard that all brokers want to grab client’s money and want you to blow up your account.​

    Commander in Pips: Well, there really are some of this kind, but in reality they are just a small part of all brokers. Think for yourself – if customers will loose their accounts fast, how will the broker make their business and earn money? Their major income is bid/ask spread and fee. If client has lost their account fast –broker will not get more cash flow. So, in fact brokers want clients to stay in business. At the same time perfect client for broker is those that neither constantly wins nor loses. Broker will be very happy if you stay in business, trade on constant basis and generate good bid/ask cash flow for him and at the same time your account stands somewhere around breakeven. Brokers like these clients. Why? You will understand a bit later. But here we have to say that most brokers do not want most of their clients to devastate their accounts.

    As an example, I give you a fast task. What is better to get – 80,000USD now or 5000 per year perpetually, if annual deposit rate in bank, say 5%?

    Pipruit: Well, I probably will choose 80,000 USD.​

    Commander in Pips: And you will be wrong, since net present value of 5000 per year will be:

    5000/0.05 = 100,000USD. So the same view applies to most forex brokers – what is better to get clients $3000 account now or regular spread for a long time?
    #1 Sive Morten, Dec 28, 2013
    Lasted edited by : Oct 15, 2016
    kiron likes this.
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