Know More Forex Broker Tricks
You as a retail forex trader need to understand that forex brokers are in the end above all marketing machines. Since more than 90% of the new traders dont survive long and give up trading after losing their hard earned money, forex brokers need a constant flow of new clients.
For enticing new clients, vast sums of money are spent on advertising by forex brokers. You can check this fact by going on Google and typing any forex related keyword. Almost all the ads will be by forex brokers. Each click costs them around $1.
One way is to announce forex trading contests that reward the winners with $2000, $1000 and $500 cash prizes. Who is the actual winner in these contests? Your forex broker!
This is like a lottery, only three win. The more you trade in order to win the contest, the more money your broker makes.
Since there is no central exchange to regulate the currency quotes, forex brokers are free to offer any price to clients. Most of the brokers simply add 2 or 3 or even more pips to the interbank market 1 pip or even lower spread, when offering rates to clients.
Now you must know how forex brokers make so much money and are even willing to spend so much on advertising. These 3 or 4 pips are risk free profits for the forex brokers.
Price shading is another practice used by forex brokers. If the broker thinks that price of a particular currency is on a rising trend, the broker will add a few pips to the currency quote in anticipation of that move. You cant do anything.
One of the classic tricks used by many brokers is to trip stop losses with a single momentary blip. Brokers have all the information about stop losses placed by their clients. So, if he finds many stop losses at a certain level, there will be a momentary spike in the price feed that will trip most of the stop losses.
You cant do anything. It was a momentary spike, so small that it only tripped the stop losses.
If you complain, your broker can say there was a sudden large transaction in the interbank market or his feed is faster and reflects the interbank rates better.
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