Forex Broker strategy

Forex Broker strategy - Brokerage

January 10, 2008 – 4:57 am

Brokerage is the act of dealing with the client’s transactions at the stage of their performance. The broker makes money, since the market “moves” against the client, and it is feasible to alter the market, using different methods. Because of that, brokerage can only be cost-effective when the number of clients, as well as the amount of transactions per client, is high. In addition, all the transactions pass through the dealer before they read the client.

Because of that, the dealer always stands in-between the client and the broker. Upon the opening of a position by the client, the dealer passes the broker’s quotation to the client. The market prices are identical for both the client and the dealer. When the client opens a position and requests a quotation, the dealer knows for sure the client’s future action, which can be either a purchase or sale.

The dealing centers’ profit consists of the difference between the price at which the dealer closes the position and the price at which the client closes the position. With the information mentioned above, the dealer can change the market for the client in any way. The dealer gives the client a quotation at a worse price than that of the market at the time of the transaction. The client will usually close the position under the dealer’s price.

The dealers get familiar with the behavior of the client. Hence, right at the time when a client opens a position, a good dealer accurately forecasts the client’s future behavior, and thus can easily “shift” the market. The dealer does that at the time when the client requests a quotation, but can also repeat the process at the moment of the closing of the position. As a result, the dealer always trades at better prices than the client.