Forex brokers trading against you
In the past, those with sufficient means to participate in forex transactions directly used a broker to trade currencies on their behalf. Whether you should consider forex trading depends on your financial circumstances as well as your market knowledge and appetite for risk. The main aim with forex trading is to predict if the value of one currency will increase or decrease relative to another. A trader might buy a currency thinking its value will increase with the aim of selling it at a profit.
Or a trader may sell a currency today, on the basis it could decrease in value tomorrow and subsequently be bought back at a cheaper rate. How are currencies traded? There are more than currencies in all worldwide. This is because when you buy one currency, you simultaneously sell the other. Each currency pair is made up of two elements. When listed in a trading quote, this part is always equal to 1. Ways to trade forex Spot market.
This is the main forex market where currency pairs are swapped and exchange rates are evaluated in real-time, based on supply and demand. Forward market. This is where forex traders enter into binding contracts with each other, locking into a particular exchange rate for an agreed amount of currency at a future date. Futures market. This is where traders take out a standard contract on a dedicated exchange to buy or sell a pre-agreed amount of currency at a specific exchange rate on a future date.
Forex terminology As with the financial landscape in general, forex is awash with its own jargon: Currency pair. Bid-ask spread. The difference between the buying price and selling price of a currency pair. A high spread means a large difference between the bid and ask price.
A pip in forex is usually a one-digit movement in the fourth decimal place of a currency pair. An exception to the pip rule is when the Japanese Yen is the quote currency. In this case, a pip is calculated as a one-digit move in the second number after the decimal point. Another term for borrowing money, enabling traders to play the forex market for larger amounts of money. The deposit required to use leverage with your trades. A standard lot is equivalent to trading , units of currency.
This is where traders use leverage see above to avoid having to tie up all their capital in a trading position. Leveraged trading is risky, however, because losses can be magnified until they exceed the initial amount borrowed. Lots also come in micro 1, and mini 10, batches. Online trading You can choose from a number of online platforms run by forex brokers, as well as several trading apps. We run through some providers below.
Funds should be held in a segregated account so that, should your broker go bust, your money will be safe. Bear in mind that the more obscure the currency pair, the wider the spread is likely to be to support the trade. On accepting your order, the dealer can wait a period of time before hedging your order in the hope of being able to hedge at a lower price.
Generally, customers who have prices move in their favour quickly after getting filled are unprofitable for the average spread betting firm and dealers may use re-quotes, execution delays or widened spreads to discourage such customers. No Dealing Desk technology or NDD for short gives you access to trade with many of the worlds largest liquidity providers which all compete for your business.
Instead of trading against their clients, brokers who use NDD are actually providing their clients with rates taken from a multitude of different banks and instead make money in the form of the dealing spread. The NDD technology automatically finds the best bid and best offer rates and streams them through to your platform so that when you are placing a trade, you are dealing on some of the most competitive FX rates.
Spread betting and CFD firms who invest in NDD technology no longer need to hope to bring on clients who are unsuccessful traders. In fact, NDD enabled brokerages rely on trading volumes, so they want and need their clients to be successful overall. A broker who offers No Dealing Desk will not give re-quotes or restrict certain trading strategies. The role of an NDD broker is purely as a middle man to your deals.
In return, NDD brokers make a transactional based commission. There is no incentive for them to restrict your trading in any way. Most spread betting firms have staff working on dealing desks that monitor all orders that are made via their trading platform. Their job is to process your order internally and regardless of whether they are running a position against you or manually hedging your trade, delays can often be experienced especially during periods of market volatility or during important market news events.
No Dealing Desk allows brokers to process all orders automatically from the point the customer places the trade on their platform all the way through to the trade being executed with the bank. NDD has removed the need for any manual interaction which means quicker execution and importantly no conflict of interest between the broker and client. When brokerage companies run a book against their clients, their dealers are watching all of the pending orders that clients have waiting to be executed at a specific price.
Experience suggests that firms who do not have NDD technology tend to prefer customers who use range trading strategies where the client is buying into falling markets and selling into rising markets. The reason that they like this type of client is because typically the time between their orders will be hours or even days giving the dealing desk enough time to process each order.
Dealing desks can struggle with more aggressive trading strategies where clients are trading very tight ranges in order to make just a couple of pips on each trade. Such strategies are often referred to as Scalping. Dealing desk spread betting firms could ask you to stop trading in this way, particularly if you are making a profit as a result.
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