What do stock market brokers make: Forex, Binary Options, etc.?
Without brokers, it is impossible to imagine a complete trading process in the Forex market. They provide traders with a trading platform through which their client can enter the market and conduct transactions. However, what motivates brokers to give an unlimited number of people money? Naturally, profit.
Spread and commission income
Theoretically, there are several ways to earn brokers. The first of them should be considered less worthy: professional Forex market participants, who are a kind of bridge between a trader and a market maker, can receive income from trading their clients by adding to the spread: in comparison with banks, the spreads of such brokers are slightly more monetary equivalent, due to which the dealing center and receives its income, without even using the commission for this purpose.
There is also such a thing as clearing: the broker receives the entire spread due to the handwritten overlapping of opposite positions directly in the dealing center, without access to the Forex market itself.
However, there is a second, more generally accepted option, and it is expressed in earnings precisely due to commissions. At the same time, the monetary conditions put forward by the broker before the client are true, and not overstated. And although the commission at first glance may seem quite small, in reality a lot of money is earned on it. Naturally, the broker is interested in the success of the client: the more trader performs operations and the more they are voluminous, the greater the income.
How to attract money on Forex?
Suppose a trader was able to turn $ 100 million invested by him into $ 1 million, and the broker must now pay him the money won. Where will he get the necessary amount? How can he attract money in order to subsequently be able to pay it off?
First of all, the broker's money is his clients. He can attract money to Forex, for example, through a commission. Also, the broker takes the money of clients in case of loss and, of course, the larger the client base, the greater the financial capabilities of the broker. A more reasonable way not to lose is to hedge client transactions.
Whatever method was chosen by the broker to attract money, the trader will remain its integral component. Therefore, one must ask the following question: how to attract customers? There are many ways to do this. A broker may chase quantity, but some prefer quality. In the second case, a large minimum deposit can be established, which will attract the maximum money from customers. But, of course, the minimum deposit method, or even its absence, is more effective. Such conditions attract a huge number of novice players, and the broker receives his money.
We can say that brokers have a lot of room for action. Forex is an over-the-counter market that has virtually no legislative regulation, and many brokers naturally do not want to lose and use various hedging methods in order to prevent risks from casting doubt on their financial well-being.
One of these methods is the overlap of absolutely all client positions at the time of the transaction. Its use makes sense subject to the high activity of a large number of customers. But the broker can apply a partial overlap of transactions. At what points can he close the position? For example, when the value of the current loss reaches a borderline value, say 20% of the deposit. Or, the position may be closed shortly before the current loss reaches a level at which the position will have to be closed forcibly to limit possible excess losses. There are other ways, in particular, “shifting” the market against the client or temporarily increasing the spreads.