Do forex brokers trade against you? – The hard truth
Table of Contents
- Do forex brokers trade against you? – The hard truth
The forex market is the biggest and most liquid market in the world. Constant buying and selling take place between two parties, usually with a broker as an intermediary.
The brokers play a vital role in this market as retail traders can not access the market without them.
New traders who experience a rough start in their forex trading journey might have a lot of questions. One of the main questions asked is:
Do forex brokers trade against you (the trader)?
In truth, some forex brokers do trade against their clients. It is not a hidden truth to most experienced traders, but newbies need to be aware of the facts. Some brokers take the opposing position of your trade to fill that order. This is not malpractice. It’s just the way they operate. This system of business is mostly practiced by dealing desk brokers, not all brokers trade in this way. That’s why it’s essential to be aware of the system of trading that a brokerage uses before you sign up with the company.
Why do brokers trade against you?
As we mentioned, this practice is more common among one type of broker. Dealing desks brokers, also known as Market makers, have a duty to create a pathway into the market for retail(smaller) traders to enter. This means they must execute every such order that is placed. Most times, they have to be the opposing party to your trade and fill your orders to achieve this.
The problem with this is the conflict of interest that arises. Naturally, this broker would want you to lose the trade because your loss would mean their gain.
Let’s assume you bought the USD/NZD pair because you expect the price to increase. The market maker broker may have to open a position to sell the pair to fill this order. That means wishing that the price decreases. These are two opposing trade positions, and one’s loss will equal the other’s gain.
Trade forex with the best conditions and a regulated broker:
Broker: | Review: | Advantages: | Free account: |
|---|---|---|---|
1. Capital.com  | # Spreads from 0.0 pips # No commissions # Best platform for beginners # No hidden fees # More than 3,000+ markets | Live account from $ 20: (Risk warning: 78.1% of retail CFD accounts lose money) | |
2. RoboForex  | # High leverage up to 1:2000 # Free bonus # ECN accounts # MT4/MT5 # Crypto deposit/withdrawal | Live account from $ 10 (Risk warning: Your capital can be at risk) | |
3. Vantage Markets  | # High leverage up to 1:500 # High liquidity # No requotes # MT4/MT5 # Spreads from 0.0 pips | Live account from $ 200 (Risk warning: Your capital can be at risk) |
(5 / 5)3-signs your broker might be trading against you
There are three ways to tell that your broker might be trading against you. You would need to look for the frequent occurrence of these three phenomena:
1. Requote
Requote means a situation whereby your order is executed at a price different from the one you requested. This is a normal occurrence in the market, especially during high volatility periods. Your broker would usually notify you and ask if you would like to execute your order at the new price. You can then decide to cancel the trade or proceed with it.
If the broker always sends a requote against your trade, causing a reduction in your profit or frequent loss, then you might be right to suspect that the broker is trading against you.
2. Slippage
Slippage is similar to requote, but your broker does not give you the option to choose in this case. Your trade is executed at the new price without contacting you. Slippage can be positive or negative. Positive slippage means the price change benefits your position. You will realize more profit than expected. A negative slippage is the opposite.
If you experience negative slippage too often, it might be abnormal. The broker might be responsible for this.
3. Stop hunting
Experienced traders are familiar with this term. Brokers sometimes use this strategy to force traders out of their positions by pushing the price to the levels where their stop-loss is placed.
Your stop-loss is the point where you wish to exit your position if the market moves against you. If many stop-losses are set off, market volatility increases. For those who truly understand the market, and know how to take advantage of volatility (like brokers), it’s an excellent opportunity to place winning trades and make a lot of profit.
Trade from 0.0 pips over 3,000 markets without commissions and professional platforms:
(Risk warning: 78.1% of retail CFD accounts lose money)
Types of brokers that do not trade against clients
1. ECN brokers
ECN stands for Electronic communication network. Brokers are meant to connect retail traders to the market and provide liquidity. The ECN brokers connect you with other traders in the market where your position can be matched with a counter trade. These have no interest in seeing you lose. In fact, they want you to make a profit. That way, you’d stick with them and they’d continue to earn a commission off your trades. So they’re considered more traders-friendly than the dealing desks brokers.
One main flaw with them is that some may require a relatively high minimum deposit.
2. STP broker
STP is the abbreviation for Straight-Through-Processing. Apart from ECN, these brokers are a great alternative for people who feel uncomfortable trading with market makers.
They provide liquidity for your trade by passing it to the liquidity providers. As an intermediary between you and the liquidity provider, they make money from the spreads. That is the spread they get from the liquidity provider and the spread they charge you, the broker.
These brokers are more interested in seeing your profit since you would continue to trade with them in such a case. These types of brokers are the best for newbies and inexperienced traders.
The STP brokers are different from the ECN ones and should not be mistaken. They serve as a middleman between the trader and the liquidity provider. The ECN brokers are not middlemen. They provide a marketplace where traders come together to buy and sell currencies. Traders deal through the ECN brokers, buying and selling forex pairs with each other. Their profits are generated mainly from the commissions they charge each trader. So it is in their best interest that their traders stay with them. And this can only happen if the trader trusts their service.
These types of brokers are crucial to the market, and all have their part to play. Even the market makers have benefits to offer you as a trader. It is up to you to decide on the business system that is suitable for your trading objective. Then find the appropriate broker, bearing in mind that the broker must be genuine and regulated.
Trade from 0.0 pips over 3,000 markets without commissions and professional platforms:
(Risk warning: 78.1% of retail CFD accounts lose money)
FAQ – The most asked questions about Do forex brokers trade against you :
Do forex brokers trade against you? Can you trust a forex broker?
When trading forex or CFDs, the contract remains between a trader and the broker; in a way, the broker always trades against you.
Even after the fact that foreign exchange trading is legal, there are some unscrupulous individuals or scams who exist in the market. This is why investors must always do proper study before taking a dive into the global financial market.
Note that, Forex trading or FX trading always takes advantage of the changes in the value of the currency exchange rates.
Can an order be executed at a different price than the one requested? Does this mean the forex trader is trading against me?
The situation where the order executed is made at a price that is different from the one requested is called a Requote. It is one of the most common recurrences within the market, specifically during periods of high volatility.
Yes, it means that the broker is trading against you. Considering the above case, the broker sends the order to you at a new price than what you requested. You can either accept or reject the proceedings. However, if they are doing it more frequently, and it is causing a reduction in profit and an increase in loss, suspect the broker and look into the matter without delay.
Can forex brokers manipulate the market?
Brokers have the ability to manipulate the charts, and these brokers are known as Market Makers. However, you do not need to be suspicious all the time as the broker chosen by you will be after a lot of research.
One problem with the Market Makers is a conflict of interest. The broker would wish you to lose your trade as it will be their gain.
Here you can find our comparison of the best Forex brokers.
Last Updated on January 27, 2023 by Arkady Müller
