Making money through forex trading needs 3 requirements to be met at the same time:
1. Techniques
2. Proper mental situation
3. Proper brokerage service
We have to talk about all of these 3 requirements on a regular basis. Focusing only on the techniques, or giving you the forex signals whenever there is a trade setup doesn’t make you a trader. You have to learn the techniques and master your trading system, and at the same time you have to build a proper and stable mental and psychological status for yourself.
Additionally, you also have to know about the brokers, the way they work and make money, and the way they can cheat their clients to make more money.
As a retail trader, you need to have an account with a broker, otherwise you will not be able to trade. Many professional traders, hedge funds, money managers, proprietary trading firms, and institutional traders who have large trading capitals, trade through the banks. Some of them have their own custom made platforms connected to the liquidity providers. However, novice retail traders who want to start with a small account, have to sign up for an account with a broker, because they cannot afford to trade through the banks, or have their own platform.
If you are a retail trader who wants to open a live account in future, or you have already opened a live account, you should know how the brokers make money and how they can cheat you to make more money.
Before I go to details, I have to clarify something:
There are so many traders who open a live account before they learn to trade properly, and so they lose. Instead of finding the problem and trying to fix it, many of them are used to accuse the broker. It is true that many brokers cheat their clients, but most retail traders lose because of their own mistakes, not because the brokers make them lose. A cheating broker can cause the losing traders to lose more and wipe out their accounts faster, but a professional trader can easily find out that the broker is cheating, so that he will withdraw his money and close his accounts as soon as possible. So, if you lose money in a trade after reading this article, don’t immediately think that the broker has made you lose.
I will have a separate article about the ways that broker can make money legally. In this article, I am talking about the ways that brokers cheat their clients to make money illegally.
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Regulation
Nowadays, traders talk about regulation all the time. A brokerage company is regulated when it is registered with a governmental organization that monitors the brokerage companies activities. Usually there are also something like insurance that covers the traders capital if the registered broker gets bankrupt.
When traders find out that a brokerage company is regulated with a well-known and powerful organizations/authorities, they think that they are safe and they can not be cheated anymore, but this is not true. I have seen some highly regulated brokers that cheat their clients the most. How?
1. There are always some special cheating ways, that can not be tracked by the regulatory authorities.
2. Brokers can easily bribe the regulatory authorities and ask them to be kinder to them and close their eyes on some events.
3. Many of the people who work in the regulatory authorities are the brokerage companies owners, and so they know how to bypass the rules
The “regulation market” started to become hot since a few years ago, and poor traders thought that the governors have finally decided to support them against the cheating brokers, but they were wrong. There are proofs that those regulations are done by the governors who directly or indirectly own brokerage companies and make millions through them. They made the regulation rules to prevent the traders to open accounts with the offshore brokerages, so that the money stays in their own countries, and the traders become obliged to open accounts with those brokerages owned by the governors. I am sure you can guess the rest of the story…
Someone Who Has GOLD Makes the Rules!
The conclusion is that “regulation” doesn’t necessarily mean that the broker can not cheat. Also not being regulated doesn’t mean that the broker cheats definitely. For some cheating brokers, “regulation” is just a tool to attract more traders to open accounts. They get regulated and registered because they have to, not because they are honest. I am not saying that all registered/regulated brokers cheat their clients. What I am saying is that don’t trust a broker just because it is regulated and registered.
There are dirty hands behind these kinds of apparently good actions (regulation). When they found out that they could make a lot of money through the traders losses, they took actions to (1) prevent the traders’ funds to leave the country, and (2) make it too difficult for the small brokerages to become registered and regulated, because (1) they wanted to keep the traders’ money in their own country, and (2) only their own brokerages become regulated, and traders can not open accounts with the other brokerages. Indeed, they created a funnel to drain the funds to their own pockets. However, people just see the surface and are not aware of what is going on behind the scene.
Let me ask you a question. More than 95% of the traders lose money. Many of them wipe out their accounts at least a few times, before they give up on forex trading. Many of them lose a lot of money. What these so called regulations have done for these people?
Nothing. Still more than 95% of the trader lose. What the governors have done is not about supporting the traders. It is about driving the funds toward the direction they want. They could easily make a rule that doesn’t allow those who have not passed some training courses and stages to open live accounts. You can not drive a car when you don’t have a drivers license. They could do the same with having a live account too. Why don’t they do it?
You know the answer. They want you to open a live account before you learn to trade properly, and lose your money. Before the regulations, they were worried about you to lose your money to the overseas brokerages, but now it is OK if you lose, because your money goes to their own pockets now.
Now, let’s talk about the ways that brokers can cheat to make more money out of your trades. Before reading the rest of this post, I recommend you to read a small article already published on fake Forex blog to learn about the two different kinds of brokers, market maker and ECN/STP.
When you learn about the market maker and ECN/STP brokers, you may think that it is only the market maker brokers that cheat the traders. This is not true. ECN/STP brokers can cheat to make more money.
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