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How do Forex brokers earn or how not to get into the clutches of fraudsters?

Dealers provide bonuses, hold promotions, trainings. In general, they try to teach their clients how to earn. Or it is only an illusion and it is not profitable for any company to start earning? To understand this we need to understand how Forex brokers earn. And let's talk about this right now.

Who are Forex brokers and in what ways can they make money?

Brokers are intermediaries between clients (private traders or institutional investors) and the financial markets, or rather, the counterparties with whom transactions are made. They receive money for their intermediary activities.

You have probably heard that brokers are also called dealers. But there is a difference between the two. The honest brokers output the deals of their clients directly to the interbank market automatically, while dealers act as counteragents and the deals are executed inside the dealer system without reference to the real market.

Forex dealers can be roughly divided into two categories:

  • Honest-kitchens;

  • Fraudulent kitchens.

  • Such companies do not submit the deals directly to the interbank, but usually conclude them within their system. Both the dealer and the clients (traders) can act as counteragents.

Kitcheners do not mean the crooks. They can earn honestly, without trying to embezzle their clients' money, but not all of them. We'll get to the bottom of this a little further.

There are also forex brokers who work directly with the markets. Such technologies are called No-Dealing-Desk (NDD), i.e. without the participation of a dealer or Electronic Communication Network (ECN). Unauthorized participation in such transactions is excluded, and the orders are executed automatically on the real market.

Why is it impossible to trade with a brokerage company, which sends money immediately to the interbank market? This is due to many factors. The main one is that you need money. The standard lot on the market is 100,000 units of the base currency.

Now let's take a closer look at what each of these types of companies can make money on.

Fraudulent brokers who embezzle deposits

No investors or speculators should deal with such "organizations". They are not interested in your profits. The only thing you have to do is to make a bigger deposit, which automatically goes to the personal accounts of the brokers' management.

They can do it in two ways:

  • They offer clients to give their money in trust to their successful specialists, after that they act in the most "artisanal" way and embezzle it;

  • Work with traders and manipulate the client's platform so that they will lose their money;

  • As for the first method, it is difficult to call them even fraudulent brokers. Most likely they are just HYIPs, i.e. working according to "Ponzi scheme". Usually they call potential "victims" and offer to make investments in trust management. Maybe the first month you will transfer some funds to lull your vigilance, but soon disappear without a trace.

In the second case, the consultants also try in every way to persuade you to fund the account. In exchange, they offer unprecedented tight spreads and commissions, infinite leverage and other "sweet" trading conditions.

To embezzle money, scammers can use such tricks:

  • Non-market quotes - here everything is very simple: you open a long position, and the price goes down, contrary to analytics. At the same time, the independent resource shows a price increase.

  • Drawing of candlesticks - the light version of the previous method, the broker simply draws the price at the right moment, for example the upper shadow, that is, the closing price of the candle.

  • Shooting down protective orders - one of the rules of money management states that the trader must necessarily place Stop-Loss and Take-Profit orders. They are deliberately cancelled/cancelled and, accordingly, they do not trigger when the price touches.

  • Intentionally closing trades by Stop Out - it's quite simple, your trades are closed with a large drawdown.

  • The last and most brazen way of earning such kitchens is just not withdrawing money. Suppose you managed to earn something or you want to withdraw the rest of your deposit, but you can't do it. The scammers simply won't transfer your money to you.

Brokers making money by "sinking" deposits

We dealt with scammers, now let's find out how Forex brokers earn in an honest way. Check forex broker ranking 2021 to find one which will fit you.

Brokers who earn by losing deposits cannot be called scammers. They act quite legally and the only thing they can be accused of is the moral aspect.

They are interested in losing a client, but do not deliberately apply dishonest techniques. They are kitchens or dealers who act as counterparties for clients themselves. In such cases, they make money on spreads, which we will discuss in more detail later.

It would seem that such profits are unstable. But it is not.

According to official statistics, more than 90% of beginners lose their funds, and newcomers come to the market every day. So, earning for beginners is "unploughed field of activity".

Professionals also have drawdowns and often even very deep ones. Though dealers work more often with beginners or traders whose trading is not the main kind of activity. Professional and experienced speculators prefer to deal with brokers with real liquidity providers and delivery to the interbank.

Spreads and Commissions

This kind of earning is the main type, and both dealers and brokers with direct liquidity earn on it.

Honest brokers can earn from these types of commissions:

  • Spreads;

  • Commissions for volumes of transactions made;

  • Swaps.

Spreads are the difference between the BID ASK. It can be fixed, i.e. it is immediately determined how many points a broker will take for a certain volume, and floating, the rate of which depends on the market situations.

Such brokerage companies are interested in professionals, which make large volumes, thereby bringing profit. It doesn't matter whether the deal will be closed in the red or in the black, the spread will still be there.

But now Forex brokers offer no-spread accounts to attract more clients. It doesn't mean that you won't have to pay. Most often there is a fixed commission for a certain turnover.

As for the swap, regardless of whether it is positive or negative, the broker can also make money on it. Usually they put their commission on swaps and charge it together with the swap from the trader's account in case of a negative one; in case of a positive swap they charge it from the accrued money.

Such brokers are the most honest and are most interested in creating comfortable trading conditions for their clients so that they conclude as many deals as possible.

Personal trading on the market and copying of transactions of professional traders

The forex market is a segment of wide opportunities to make money, and various entities - banks, hedge funds, insurance companies, pension funds and so on - are entering the interbank environment.

Brokers who can't miss such opportunities, and the biggest of them are even market-makers.

Traders trade here, and they do it in such ways:

The brokers hire professionals who trade using their money and receive for that either a percentage of profit or a fixed rate. Such traders are called institutional traders.

They copy deals of successful speculators, who trade with them. This way they "kill two birds with one stone" - get profitable positions and do not pay money for services of professionals.

Generally speaking, the range of brokers' earning is pretty wide. They also offer various trust management services, for which they receive money, train traders for a fee, take their clients to other exchanges and even invest their capital in different types of assets.

Now you know all about how forex brokers make money. Whatever methods they use, the most important thing to remember is that you should not suffer from their manipulations. You can lose your deposit only through your own fault, not the dealers and brokers.

To choose a broker who will earn honestly and not embezzle your deposit, you can study our ratings of the best, as well as detailed reviews of brokerage companies.

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Topic revision: r2 - 2021-06-10 - devart
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