How do brokers make money??

[susanagpg]

The way I understand it, we're buying from the dealer or selling to the dealer? I know they make money on the spread, but do they make money on losing transactions and winning transactions? You hear that traders do counter tops and they don't cancel.

Imagine if someone is trading 10 or 20 lots and make 100 pips? If the trader can do this over 50 percent of the time with smaller losing transactions, to me that is alot of cash.

Thus, How do traders make money?

Thanks,
Drew

[susanagpg]

Thanks Merlin!!

[angiinga]

How I understand it, we are buying from the dealer or selling to the dealer? I know they make money on the spread, but do they make money on losing transactions and winning transactions? You hear that traders do counter tops and that they don't cancel.

What if somebody is trading 10 or 20 lots and make 100 pips? If the trader can do that over 50 percent of the time together with smaller losing transactions, to me that's alot of money.

Thus, How can traders make money?

Thanks,
Drew

I've asked a lot of brokers how can they make money and I've received various answers largely evasive answers I believe. 1 broker told me that (apart from other ways) they exchange just like me and they win and lose just like me!

I sometimes take lots of trades daily - in the order of 20-100 individual transactions per day. They despise it! The reason is that they do not have time to cancel the transactions (see Merlin's answer.) They eventually shut me down by giving me a hard time by putting me on dealer execution and giving me broad spreads. I've had as many as 40 pip spreads on Euro. So obviously, they can not make money from me trading in and out quickly.

One broker told me that they do not make any money on short transactions. About 90 percent of my fast trades are shorts so he does not need me around. I could not find a sensible answer from him concerning the reason here! Maybe someone can enlighten me ?

Interest is certainly a big earner for them. Ponder why FXsolutions really pays you money to put more money in your account! They definitely use your money to make money. A friend of mine told me that FXCM pays daily interest at the NY near for many profits on long transactions. This doesn't sound very exciting until you realise how much attention! It varies by the currency and also from the afternoon. He's received as much as 98% attention on his profit for one day and often gets 20 percent. Losses on longs will cost you the same in reverse! Now I have not verified this personally so take it as hearsay right now but he is a trader who deals 50-70 lots each trade and I've known him for about six months and find him plausible up to now!

[angel23cm]

Can somebody clarify what it means to bucket trades and how profit is generated from bucketing trades? Is it still done now?

I have come across different defiintions for what it signifies.
Http://www.investopedia.com/terms/b/bucketshop.asp

I have only read Reminiscences of a Stock Operator. In the book, the main character traded in Bucket Shops as a youth. Finally, he had been barred from gambling in most bucket stores because he usually won. I really don't understand how these bucket stores lost money when traders won and earn money when traders shed.
How different is the tradition of bucketing trades now different than what is portrayed in Reminiscences of a Stock Operator?

Thanks to Merlin for recommending this book. I laughed a lot.

Thanks all

[oxmlabe13]

I've Only read Reminiscences of a Stock Operator. From the book, the main character traded in Bucket Shops as a childhood. Finally, he was barred from trading in all bucket shops because he usually won. I don't understand how these bucket shops lost money when traders won and make money when traders shed.
How distinct is the tradition of bucketing trades today different than that which is portrayed in Reminiscences of a Stock Operator?

Thanks to Merlin for recommending this book. I laughed a lot.

Due all

that's really a great book, maybe the best I have ever read monetary or otherwise. The bucket shops of yesterday will be the same as today. To bucket a commerce method to take the other side rather than passing it through to the market. You asked why the bucketshops didnt want Larry to exchange. . .think relating to it. . .if someone buckets your commerce, if you win they shed! Thats the conflict of interest I was talking about. If a broker has any control over your positions, and they are also trading against you, we then have an unfair playing feild.

[oxmaya94]

Oanda clearly informs you,in the costumer arrangement, they might take the other side of your trade.

[Bomlxabfc]

I dont know the difference it makes who takes the other side. If you are a technician using your brokers feed, shouldn't any offsetting of positions they have been discounted like any additional traders. Plus, one does not always win if the other loses and vis versa.

[jokesipk88]

Plus, one doesn't always win when the other loses and vis versa.

Not Correct. Commodity trading is a zero sum game, meaning that for every winner there's a loser. And sometimes there are two winners due to commissions.

[Anpknio.l.g7]

The above issues touch upon the situation of Coping Desk, which makes sensitve brokers put their hair on fire, and newbies stumble in confusion like deer in the headlights. We can pretend there is a real interbank market if we want. The truth is that lots of orders never leave a broker's dealing desk.

[oxmlabe13]

The broker doesn't take another side of your own position. Whenever your order for 20 lots comes through, they offset that position from the interbank currency market. They make money from your spread, as you are spending a 3 pips spread, whereas they are paying under a pip from the interbank market.

This is the way brokers are supposed make money. A few of these exchange transactions, meaning they take the other hand. This is unethical business since it causes a conflict of interest, and in our unregulated universe of retail forex that this occurs all too frequently.

Foreign Exchange brokers are make a whole lot of money with these interest payments. Put simply, if they roll over the places regular they charge you more attention than they pay, plus they pay you less attention than they create. Their justifiion for this is that they are loaning you money through trading leverage.