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How Forex (Brokers) work?

Discussion in 'General Forex Talk' started by D-Trader, Oct 26, 2009.

  1. D-Trader

    D-Trader Private, 1st Class

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    I am new here. I am interested to know how forex machanism & Forex brokers machanism work. What I am thinking. I am thinking that you open an account by any forex broker and they issue you an account number. You deposit the fund (not in your account but in the broker account). Every forex broker account holder have no access to his/her account. You are trading on your plate form as Live account but I think you trade as dummy account holder. I think that broker collect the money from your account (fromall account holders) and invest futher in Forex or other investment products. Now you are trading and making profilt or loss. If you are loosing, your money belong to Broker. If you are making profit then is the question how this broker firm making progress. How broker will pay? If brokers is not making well profit then they are not able to pay you back. In this case they will try to delay or put some reasons. In Stock market you open an account, this account is your own account. You can withdraws anytime when you want and you can fund anytime because you have an access to you account. Forex software LIVE is working as demo software. What you fund real money goes to the broker account but not in your account. In your account what you see are the numbers. You are playing with numbers. Example: I deposite some EURO to my Dollar account and my dollar account shows me amount of euro but not of Dollars. I send an E-Mail that my account is in Dollar not in Euro. After sendiing my e-mail just after few minuts my account was in Dollar. I thought that it may take further few days or minimum one day that they will send request to Bank. But it is happended with a minuts. So is there some who can tell me how Forex broker accounts are working realy?

    I think that when you buy or sell in your software broker is not sending any request to his bank. And also is not possible that one broker account in some bank working well as for every account holder request selling and buying Currecies.

    So please if some can tell me how your forex account works? How your requests buying and selling working?

    D-Trader
     
  2. Nancy Cheah

    Nancy Cheah Sergeant

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    Actually, the broker is your middle person when you want to execute orders.

    It's something like a sportsbook if you know what I mean.

    Yes, the broker does hold your funds and what they do is entirely up to them.

    However, you must also be aware that the broker is also regulated by it's government.

    Hence, some points which you posted are correct but I'm here to edify some extra points.

    Hope that you're clearer now.

    Regards.
     
    #2 Nancy Cheah, Oct 27, 2009
    Last edited: Sep 5, 2011
  3. D-Trader

    D-Trader Private, 1st Class

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    Thanks,
    But something is strange!

    Say, I have 100,000 USD in my briefcase and went to Bank. I want to buy NZD by selling JPY.(NZD/JPY). Banker will first change the USD to JPY that he/she can convert to NZD by selling JPY. Of course, he/she change me my 100,000 USD to JPY at the rcurrent rate of say 91,95. I have ca. 9,195,000 JPY. Now Banker buy NZD selling JPY at the rate say 68,71. I have now ca. 133823 NZD in my hand. I went to waiting room and watching the rates. Suddenly rate of (NZD/JPY) fall to 68,51 I have loss of ca. 220 NZD or USD? I am in loss. I watch the USD/JPY rate floating at 91,50. I went to Banker and ask him, please give me JPY I have 133823 NZD. Now rate is 68,51. I have now 9,168,213 JPY which are about 26,787 less. Now Banker change me JPY in USD.(JPY get strong against USD. Now USD/JPY standing at 91,51. I have now 100,188 USD.

    If the Banker change me direct from NZD to USD which is at rate of 0,7486 I have again ca 180 USD in profit.

    Am I calculating FALSE? Then please help me to calculate correct.
     
  4. Nancy Cheah

    Nancy Cheah Sergeant

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    First and foremost, you must be able to differentiate between currency trading and currency exchange.

    What you've said was currency exchange.

    Currency trading is entirely different.

    Regards.
     
    #4 Nancy Cheah, Oct 27, 2009
    Last edited: Sep 5, 2011
  5. Jason Rogers

    Jason Rogers FXCM Representative

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    Where your profit is coming from and who your losses are going to will depend on the type of execution the broker uses. Market makers and dealing desk firms take the other side of trader positions and can profit from trader losses if they do not offset the positions. There is more discretion over this since they are making the market.

    Brokers uses NDD/STP/ECN like execution are passing the trades to the banks they deal with to offset the positions so the final outcome of your trade (profit/loss) doesn't have an impact on their bottom line. Instead they will be profiting through either a commission or a mark-up on the spread.

    In your example of NZD/JPY, most brokers will quote NZD/JPY as its own pair rather than you having to trade USD/JPY and NZD/USD separately to synthetically create it.
     
  6. Alex-the-Gr8

    Alex-the-Gr8 Private

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    HELP! MT4, ECN . . . .I'm old school . . . .

    I have very little experience with these retail platforms - willing to test out a few to see how they tick. Any ideas? As an aside, I worked for a US bank on their trading floor - so I'm not super duper familiar with retail trading platforms. I worked with one, spread based - simple to use, not great charting - not horrible either. Want to move to ECN and figure out the fuss over MT4. Thanking you in advance for your input.
    Alex
     
  7. D-Trader

    D-Trader Private, 1st Class

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    Thanks to write your comments and advises. I was near to retire from FX. Just a question why Forex broker are not allowed to let the user use their account thierself that they can withdraws or funds direct to thier account and sell/buy like stocks. I will be glad to know if someone can explain. Thanks.

    D-Trader
     
  8. Pharaoh

    Pharaoh Colonel

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    You have a broker that won't let you withdraw funds??? Are you sure you are dealing with a broker and not some managed account company (then again, if one of those won't let you withdraw, it's probably a HYIP scam).

    Most brokers let you deposit and withdraw freely. The drawback is that most only let you do this in your original currency, so you can't use them to convert money for your upcoming vacation. I have heard of a few brokers that really will let you "take delivery" of the other currency, but this is rare.

    As for using a USD based account to trade NZD/JPY, you'll notice that the spread for unusual cross pairs is typically wider. I've seen cases where for an XXX/YYY cross pair, it's cheaper to buy and sell the right combination of XXX/USD and USD/YYY than to trade the cross pair directly.
     
  9. Cyclon

    Cyclon Company Representative

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    You are correct on the facts

    D-Trader,

    You are correct on the facts but you may have drawn
    a conclusion that troubles you regarding Forex that is
    not something you need to be concerned about.

    (First let me qualify that by stating that I refer only
    to healthy, solvent firms.)

    It is true that your money goes into the brokerage firm
    bank account. The "Further Credit to [your acct.]" is
    nothing but an accounting memo entry.

    The broker type will govern what they do on their side
    of daily operations but will have the same result as far
    as the profit or loss to your "ledger" for any trade.

    Note that I am not addressing the issue of competing
    with the broker in bucket shop situations here since
    that is a separate item involving elements of deception.

    Stock Brokerage firms may give you a debit account or
    card linked to your ledger but they have all funds central
    in their own account also. There is no difference.

    In essence your checking account is the same. Just
    computer database entries keeping track of whose is
    whose.

    Just use due diligence in choosing a good broker for
    Forex and good trades to you.

    ---

    Alex,

    It may be me but I was not able to get a sense of what
    specific fuss you mean about MT4. You may wish to
    begin a separate thread about that question.


    Cheers,
    Cyclon
     
  10. D-Trader

    D-Trader Private, 1st Class

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    Hello to all,

    Let start from start. "HOW TO CHOOSE A BROKER"
    :confused:
     

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