81. The Role of the Retail Forex Broker

http://www.youtube.com/v/szs8cBa1LzA?fs=1

Practice trading with a free demo trading account: http://bit.ly/IT-forex-demo3

View full lesson: http://www.informedtrades.com/21008-how-forex-broker-provides-access-individual-traders.html

The platform featured in the video is the FX Trading Station. Click here to try a register for a free practice account on the FX Trading Station: http://bit.ly/register-fxcm-demo

Before the internet, very few individuals traded foreign exchange as they could not get access to a level of pricing that would allow them a reasonable chance to profit after transaction costs. Shortly after the internet became mainstream however several firms built online trading platforms which gave the individual trader a much higher level access to the market. The internet introduced two main features into the equation which were not present before:

1. Streaming Quotes: The Internet allowed these firms to stream quotes directly to traders and then have them execute on those quotes from their computer instead of having to deal over the phone. This automated trade processing, and therefore made it easier for firms to offer the ability to trade fx to the individuals and still be profitable.

2. Automatic Margin Calls: What is not so obvious but what was perhaps even more key is that the internet allowed an automated margin call feature to be built into the platform. This allowed firms to accept cash deposits from clients instead of having to put them through the process of signing up to trade via a credit line. As we discussed in our last lesson it is very difficult to get a credit line to trade FX and for those who do it is a lot of paperwork and hoops to jump through before they can begin trading. This would have made it impossible to offer FX trading to smaller individual traders as the cost involved in getting them set up to trade would not be worth it.

As the electronic platform allowed clients to deposit funds and then automatically cut them out of positions if they got to low on funds, this negated the need for credit lines and made the work to get an individual account open well worth it to the forex broker from a profit standpoint.

If you don’t understand all the ins and outs of margin at this point don’t worry as this is something that we are going to go into much more detail on in a later lesson.

For now it is simply important to understand that what these firms did was take all the traders who were not big enough by themselves to get access to good pricing and routed their order flow through one entity that was. This allowed these firms access to much tighter pricing than would otherwise have been possible which was then passed along plus a little for the brokers to the end client.

So now you can see why although the forex market has been around for a relatively long period of time, individuals have only started to trade the market over the last few years.

Anther key thing that it is important to understand here is that the larger a firm gets in terms of trading volume, the greater access that firm has to tighter prices and liquidity and the more likely that firm is to be able to pass on better pricing and execution to their clients.

This is another reason that many traders will evaluate the size of a firm as one of the key factors in deciding who to trade with.

http://www.youtube.com/v/skvsu2vGK10?fs=1

Find out where the retail FX investor fits into the largest financial market in the world.

81. The Role of the Retail Forex Broker

Practice trading with a free demo trading account: http://bit.ly/IT-forex-demo3

View full lesson: http://www.informedtrades.com/21008-how-forex-broker-provides-access-individual-traders.html

The platform featured in the video is the FX Trading Station. Click here to try a register for a free practice account on the FX Trading Station: http://bit.ly/register-fxcm-demo

Before the internet, very few individuals traded foreign exchange as they could not get access to a level of pricing that would allow them a reasonable chance to profit after transaction costs. Shortly after the internet became mainstream however several firms built online trading platforms which gave the individual trader a much higher level access to the market. The internet introduced two main features into the equation which were not present before:

1. Streaming Quotes: The Internet allowed these firms to stream quotes directly to traders and then have them execute on those quotes from their computer instead of having to deal over the phone. This automated trade processing, and therefore made it easier for firms to offer the ability to trade fx to the individuals and still be profitable.

2. Automatic Margin Calls: What is not so obvious but what was perhaps even more key is that the internet allowed an automated margin call feature to be built into the platform. This allowed firms to accept cash deposits from clients instead of having to put them through the process of signing up to trade via a credit line. As we discussed in our last lesson it is very difficult to get a credit line to trade FX and for those who do it is a lot of paperwork and hoops to jump through before they can begin trading. This would have made it impossible to offer FX trading to smaller individual traders as the cost involved in getting them set up to trade would not be worth it.

As the electronic platform allowed clients to deposit funds and then automatically cut them out of positions if they got to low on funds, this negated the need for credit lines and made the work to get an individual account open well worth it to the forex broker from a profit standpoint.

If you don't understand all the ins and outs of margin at this point don't worry as this is something that we are going to go into much more detail on in a later lesson.

For now it is simply important to understand that what these firms did was take all the traders who were not big enough by themselves to get access to good pricing and routed their order flow through one entity that was. This allowed these firms access to much tighter pricing than would otherwise have been possible which was then passed along plus a little for the brokers to the end client.

So now you can see why although the forex market has been around for a relatively long period of time, individuals have only started to trade the market over the last few years.

Anther key thing that it is important to understand here is that the larger a firm gets in terms of trading volume, the greater access that firm has to tighter prices and liquidity and the more likely that firm is to be able to pass on better pricing and execution to their clients.

This is another reason that many traders will evaluate the size of a firm as one of the key factors in deciding who to trade with.

8 thoughts on “81. The Role of the Retail Forex Broker

  1. Riley Huntley

    yep thats correct. when you do penny stock trading get good suggestions from professionals is the wise idea. dont think its funny, These professionals are being with us always to guide us to choose and trade in proper way. have a try and make the most of them πŸ™‚ >> bit.ly/1819Xjw?=eczofn

  2. Abu Sufian

    ey, have you considered "Forex ReturnMAX" (search on Google for it)? On their website you can watch a smart free video. It made it possible for Ulrich to double the capital in his fx trading account in less than 3 month quite easily. Perhaps it will help you out too.

  3. Master Day Trading Coach, John McLaughlin

    Great video – subscribe and friend for power packed videos…

  4. gutrp

    True. ONE of the reasons forex is risky no one talks about is because these brokers CAN trade against us.
    Google – ECN and retail forex brokers.
    ECN brokers r safer

  5. jgray110

    Forex is a complete waste of time and money, don't say i didn't warn you, the best thing we can do is put these bastards all out of a job, I can show you 200 trades with hand-drawn charts of the crap that goes on, you go long they turn it short, you revers and go long, they turn and go short, you go short and long, they drag it down the middle endless, tight and loose stops are a cinch for these crooks.

  6. InformedTrades

    Hi elpatxi22, I don't personally trade using MT4 so I don't have any personal experience with them however the MT4 brokers that you here the most about are Interbankfx and FX Direct Dealer. Best Regards, Dave

  7. elpatxi22

    Hi David.I've a demo account at Interbank Fx.On the internet people say it's good because it's a MT4 broker,it has lower spreads & it's regulated, others say it's bad because it requotes and sometimes the server shutdown. Moreover pip spread increases when news are released.So before opening a real account I'm looking for a a MT4broker, lower spreads, regulated,good costumer service.What do you think about Interbank Fx?What kind of MT4 Forex broker could fill al this requirements?
    Thanks,

  8. InformedTrades

    Hi Yosergeibell, Really depends on what you are looking to do. If you visit the InformedTrades site and slick on the search button in the top navigation bar and then search the tags for 'choosing a broker" this will return a post where I discuss some different options. Best Regards, Dave

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