The truth about bad market maker/retail Forex brokers
In this article we are going to discuss market makers, who usually refer to themselves as retail brokers. This means that they are not institutional, where they cater for large financial corporations. They simply provide a trading platform to traders from home or those that generally trade amounts less than millions of dollars per day.
These types of Forex brokers come in large numbers and it is not hard to spot a marketing campaign where they promise low/fixed spreads, no commission or some kind of bonus that is designed to entice us in. Some of these offers are quite genuine but some can be slightly confusing and this is where new traders get stuck. It is therefore the purpose of this article to funnel out the bad truth about market maker/retail forex brokers.
Market makers defined
The term ‘market maker’ is quite a scary one; but not an illegal one. This means that the Forex broker (the market maker) can make its own market. It does that by placing your order in its own market where the bid and ask can be manipulated to their financial advantage. That is, they trade against you if you put them in too much risk. If your order was put into the open market they would not be able to do this as they have no control there. So, it pays to be a bit careful when signing up to a new trading account because this ‘bad play’ is not illegal.
Commission free trading explained
Forex brokers tend to charge commission for placing a buy or a sell. Those that don’t charge commission make a profit from manipulating the bid and ask prices. If they didn’t do that they would simply not make a profit. So, while it might look that trading is commission free, charges and manipulation are being created and undertaken elsewhere to cover the losses of not charging a commission.
If you have experienced a market price freeze during a trading session, it is likely that your broker is a market maker. Price freeze is literally a point at which you wish to enter the market but the trading platform either ‘freezes’ and does not allow you to enter or you get a long pause where the broker is looking for the best price (for them) to enter the market. By the time you are filled, it is probably too late. If you have experienced any of the above you are not trading in the open market. In the open market you are able to enter and exit whenever you desire. By making you wait or simply not allowing you to enter or exit, the broker is not being fair.