Are Forex Brokers Really Trading Against You?

by Danielle Franklin

Once you achieved a certain level of self-esteem with demo trading, it is time to go live and open a real forex account. The next couple of days will probably be filled with the headache of searching for forex brokers reviews and observing the feedback and suggestions from other traders. However, you might notice a peculiar tendency in some of the reviews to claim that forex brokers trade against you and their main agenda is to wipe out your account. For a new little fish in the huge pond this information is very discomforting.

There are many forex brokers out there and most of them have reviews on the net. The question is, are bad reviews really unbiased or they are written by either competition or bitter traders who emptied their account because of the lousy experience? After all, only when things go bad we tend to complain! On the other hand, are good reviews really unbiased or are they written by the representative of a particular forex broker?

As a new forex trader you already know that forex brokers make money from either spreads (and so your success is the broker's win too), commissions (then the broker doesn't care whether you win or lose) or both. So logically speaking it is in the broker's interest to keep you in the game. However, is it possible that in reality brokers are out to get you? Are the seemingly safe choices are simply illusions supported by glittery marketing strategies and demo platforms?

In my opinion, the answer isn't really as black and white as you may think. There are honest brokers out there, but like in any other business, there are some who try to profit big and fast.

The retail brokers do want to see you fail, since they make money when you lose money. Basically, this kind of broker takes the other side of your trade. In this case the retail forex broker is the market maker. It can change prices, widen spreads and, of course trade against you. To every dark side, there is a plus. In our case retail broker have an advantage - you can open an account with very little investment, get very high leverage and the demo platform is available for practice longer than 30 days! Retail forex brokers offer micro and mini lots which allow you to trade very small sizes. . Not all of these brokers will be "hush-hush" about their technique, but some sure will.

Forex broker without dealing desk (ECN type) is more likely to be honest about the trades since it passes your trading orders off and doesn't care if you are winning or losing. Their agenda is to get you to trade more and therefore earn more via spreads or commissions. These forex brokers are more like interbank brokers. They don't trade against you and therefore there is no need to manipulate neither price nor spreads. Spreads are in most cases tighter, but you are probably have to pay commissions. Every trade you make passes through interbank. With ECN forex broker the leverage is generally lower and the minimum account deposits are higher.

In either case, finding a good forex broker is up to you. Talking to people you trust or learning the hard way are two traditional options of finding the right broker for you. My advice is to start small with the broker that seems good and safe, open a life account, make sure that things look right to you and slowly add as you go. There is no need to rush when it comes to forex trading.

Most importantly, don't invest everything you have in one go. Split your fund among few brokers and see what happens. You will sooner or later realize which of them are naughty and which are sincerely nice!

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Disclaimer: Foreign Currency trading and trading on margin carries a high level of risk and can result in loss of part or all of your investment. Due to the level of risk and market volatility, Foreign Currency trading may not be suitable for all investors and you should not invest money you cannot afford to lose. Before deciding to invest in the foreign currency exchange market you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with foreign currency exchange trading. All opinions expressed are for informational and analysis purposes only and do not constitute investment advice.