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Here we will share valuable information from our vast experience in the forex industry and will present the way forex brokers operate. If you reached this page searching for the best forex broker in the world, you should keep reading because this is probably the first website that will tell you the truth instead of just flashing their sponsors in front of your eyes. How the online forex industry works If you want to trade forex it is very important to understand what you’re dealing with and how the industry works. The forex market is the largest market in the world by the volume of daily transactions and there is money to be made here, and this is why a huge industry developed around forex trading. This greatly distorts the reviews and the rankings you will see on such websites, as the website owners will promote the brokers who sponsor their websites. So, the first thing you should know about the forex industry is that brokers pay a lot of money to be displayed on reviews websites and this is why the information you will see there is not objective. How do forex brokers make their money?
Or at least, this is what they all say on their websites But is this actually true? As with most things, there is some truth in this statement, but things are not exactly the way they are presented. There are actually three different business models that forex brokers use in order to make money. Below, I will present the three of them. The brokers using this business model are just waiting for their clients to lose their money, since they are the counterparty of the trades. They are very similar to bookmakers as they make money when the client loses. Of course, the spread plays a role in this business model as well, because the spread gives the broker an edge against the trader and will cause the novice traders to lose money in the long run.
For example, if the liquidity providers have a 0. This business model is very similar to the one described above, as the broker will execute your trades directly to the liquidity providers giving you direct market access. The difference between the two is that in this case, the broker will charge a commission for every trade you place but will not add a markup to the spread. This means that you will trade directly against the liquidity providers at interbank spreads. STP models are based on executing the trades directly to liquidity providers, and they are more or less the same from the trader’s perspective, since the markup and the commission are usually equivalent in terms of cost.
Brokers are able to provide a STP model only for accounts with the standard lot size of 100,000 units for major pairs. For mini and micro accounts all brokers will have to work as market makers. As you probably noticed, there is a huge difference between market makers and STP brokers in the way they make money. What model is more profitable for the broker? This greatly depends on the type of traders they have. A broker with novice clients will make more money being a market maker.