How Forex operations are conducted

Among the many traders of the Forex currency market, few can boast that they are steadily profiting, rather than "asking" their money. Currency trading is a much more complex activity than it may seem at first glance. One of the factors that can significantly affect your trading performance, but which is often overlooked by novice traders, is your Forex broker's scheme of work. How are transactions in the Forex system conducted?

How Forex operations are conducted

There are three main types of Forex brokers, depending on the type of performance of operations in the market.


1) So-called "kitchen" brokers. In such an organization, operations in the Forex market are carried out on the tote principle. That is, your money does not participate in real interbank trading; in a sense, you are simply betting on the rise or fall of a particular currency - and depending on how right you were, your profit or loss is calculated. However, unlike the classic totes," kitchens" do not tell you about it. Their clients believe that they participate in real currency trading, while the brokerage organization simply provides them with a "virtual" execution of their transactions.

Your broker's profit consists entirely of his clients (including you), and vice versa, your profit is a direct loss of such a broker. Accordingly, kitchen brokers do not shy away from using various technical methods aimed at "helping" the client drain the deposit. These can be sudden hangs of the trading terminal; Slow speed of execution of orders; the presence of non-market quotes, studs, price gaps, which are not on the real chart; In this case, no transactions in the Forex market are conducted, and just a broker by all available to him methods tries to "squeeze" your money.


2) Forex brokers providing partial withdrawal to external liquidity. Under such a system,Forex transactions are carried out as follows. Let's say that some of the broker's clients currently have a long position on EUR/USD of EUR/USD of 10 million, which means that they bought 10 million euros for dollars. The other has a short position on this currency pair (for example, they sold 8 million euros per dollar). The difference between these sums the broker brings to the interbank, i.e. it buys 2 million euros per dollar. The remaining 8 million purchased and 8 million euros sold balance each other. The broker charges a commission (usually included in the spread size) from both buyers and sellers, although, in fact, their money (8 million) in real trading is not involved in any way.Many more honest brokers conduct Forex operations under such a system than "kitchens." The broker's profit here is formed not at the expense of clients' loss but by the client's expense of commissions.


3) Brokers providing full withdrawal to external liquidity. What does that mean? This means that if a trader Vasya, working with such a broker, bought 2 million euros for dollars, and some Petya sold the same 2 million dollars. Both of these transactions will really be carried out in the real interbank market. Yes, the broker will receive the commission due to him. Still, unlike the previous option, traders Vasya and Petya, in some cases, will be able to sell/buy the currency at a slightly better price for themselves.

In this form, the Forex market's operations are carried out by the most serious and honest brokerage organizations working on STP or ECN technology.

At the same time, it should be said that no matter how honest and serious the broker is, he technically has no opportunity to bring to the real interbank transactions of his clients, not reaching a certain amount of volume. Therefore, if the broker has many traders simultaneously buying or selling the same currency, the corresponding transactions in the Forex system are carried out with a cumulative client position.


Among Forex brokers who are not "kitchens," but, on the contrary, who enjoy a good reputation and trustworthiness, we would like to recommend you Alpari and NPBFX. We are dealing with these two organizations - and so far, we have no complaints about them.


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