How charge spread can be profitable for Brokers?

Just one curiosity about fx brokers.. Why they are so rich?

I was thinking about how they really really makes profit.

Supossing that one client opens a lot position in EURUSD with spread 3.
The broker might charge a spread PLUS a comission for this.

So, if the comission was 3$ per lot opened , multiplying this by the number of lots made just per 1 trader ... 10lots*3= 30$ charged

Multiplying by 1000 clients opening 1000 standard lots in EURUSD and 1000 standard lots in AUDUSD , the sum would be 1000lots*3 + 1000lots*3 = 6000$ charged in just one day.

In one month, the broker's profit would be 6000$*30days=180k USD

I am not considering the HUGE volume traded by a month.. some brokers trades a volume around 2 billions dollars.

I don't know how works the spread... i.e, how is made the division of spread between trader + broker + bank.

What an experienced trader would think?
Cheers!

Well actually 90% of them are bucket shops. They know the failure rates, so your order doesn't even go through to market. They take the other side or square their books, before they hedge the aggregated exposure on the open market.

So basically if you open a $10 000 account they just take the $10 000 from you, regardless of spread. If you do win they'll pick an argument and not pay you anyway.

Bucket shop 101. Especially MT brokers. One can argue MT was designed to make the trader fail.

So that's how they make money, a product designed to fail.

Do you think meta trader was designed to make people lose? If so I would be interested to hear your views on how it is so? If you mean re quotes and slippage or?

I second PipGnostic.. MT4 was designed to make retail traders lose their cash..

There is other platforms that offer faster and more accurate backtesting and order execution with very limited slippage for scalpers as there is no MT bottleneck..

@240Code

For one they don't give you any indication of the values you're trading, which is critical.

If you think about it, for 100 000 lot accounts, most people would put down $10 000 which is already a fair whack. And the minimum you can trade on that is for say EurUsd 0.01 x 100 000 x exchange rate. So even your smallest trade is already 10% + of your capital. That alone will make any portfolio fail. You have to be the best of the best to make that work.

So you need $100 000 at least to get started, or better trade sizes.

On platforms like Oanda the value of what you put down is reported and clearly shown. On MT it's not. Also the trade sizes on Oanda ensures a better rate of survivability, which is why they had a 50% client win ratio. Or should I say 'had' till they started raping peoples spreads. For example on O you can make a setting to use 1% of your leveraged capital and you'll always get the correct value trades, not to mention a reasonable risk. Something you can't even begin to do in MT unless you code it yourself and have $100 000 in your account.

There is the much rumored plugin, which means they can play with your feed. Put in spikes etc.

I asked a friend of mine who owns a MT brokerage if the stories are true. And he said and I quote '...the broker can make it very difficult for you...'

He wouldn't say anything else other than that, but the implication is clearly that the broker can do things with MT to make you fail if you don't fail yourself.

The average broker model is clearly an expectation of your failure. That's how they make their money and why if you're doing well your account gets frozen or they pick a fight not to pay, accuse you of arbitrage or something, google around and you'll find many examples of this behavior from brokers.

First thing I do when I look at a broker, is google to see if people complain about frozen accounts. If they do, it's bucket shop.

The ECN's are different. They do put your orders through to market. You can easy recognize them by being unable to send an order with a SL or TP. But the majority of them are full lot brokers, need $100 000 or more to stand any chance of making it.

MT5 is better, it does report position values. But the take up has been so low. And again full lots, I haven't found a micro lot MT5 account yet.
 

As for slippage, execution speed...

We're not HFT traders and certainly can't be on retail platforms. So speed just isn't that much of an issue, if it takes 100 ms or 250 ms makes no difference.

Slippage, we'll again, just par for the course on any retail broker, till you can afford to get an interbank feed it's going to be how it is. Strategies should be robust enough to accommodate slippage anyway and should have code written to look for wide spreads before trading...

I don't think those two factors are to much of a problem for a well designed retail strategy, proper reporting and minim values are much more fundamental problems. And MT suffers from both, by design or just lack of understanding I don't know, but those are the main problems for the new trader...

TheCyclist posted:
As for slippage, execution speed...

We're not HFT traders and certainly can't be on retail platforms. So speed just isn't that much of an issue, if it takes 100 ms or 250 ms makes no difference.

Slippage, we'll again, just par for the course on any retail broker, till you can afford to get an interbank feed it's going to be how it is. Strategies should be robust enough to accommodate slippage anyway and should have code written to look for wide spreads before trading...

I don't think those two factors are to much of a problem for a well designed retail strategy, proper reporting and minim values are much more fundamental problems. And MT suffers from both, by design or just lack of understanding I don't know, but those are the main problems for the new trader...

You dont have to be a HFT trader to suffer from a massive 50 pip slippage you will see from MT4, where-as this doesnt happen on a API feed...

TheCyclist posted:
Well actually 90% of them are bucket shops. They know the failure rates, so your order doesn't even go through to market. They take the other side or square their books, before they hedge the aggregated exposure on the open market.

So basically if you open a $10 000 account they just take the $10 000 from you, regardless of spread. If you do win they'll pick an argument and not pay you anyway.

Bucket shop 101. Especially MT brokers. One can argue MT was designed to make the trader fail.

So that's how they make money, a product designed to fail.

interesting, but so.. how why there is a lot of profitable retail traders? there is a lot of good review from trader playing fx using metatrader.
nobody likes to tell the obscure side of profit... at least, the most retail traders don't know.

Anyway, i have faith to become a profitable trader ,taking legal tradings , of course... lol