STP Vs Market Maker Brokers - "How do brokers make money?" - Article 4

In article 4, we will discuss how a broker makes money and how it affects traders:

Broker Profits – ECN, STP, DMA or Market Maker?

We will now look at those brokers that claim to be ECN and offer a fraction of a pip spread or even zero spreads. These brokers are tricking you to think that you are trading ECN model and you are trading with the real markets. Logically thinking, how can a broker offer a zero spread? Where is the profit coming from for the broker? The answer is simple, CLIENTS LOSSES.

Ask yourself, have you ever heard of a bank that operates with no charges, of course not, a vehicle service centre that doesn’t charge for repairs? The logical is really that simple.

You might ask yourself, ok, so the broker is making the market, why should it affect my trading? The truth is if you are a losing trader, you will never notice any different, unless the broker is really greedy. Those that are at a level of generating profits from forex trading will be hit the hardest with manipulation, order delays and even expulsion.

A real STP broker will have a spread or commission that is logical and hopefully still attractive for the trader. A logical reward rather than offering a trading power bonus would be based on a rebate and around the commission earned from the spread costs.  Rebates are a valuable tool for clients and they can deliver valuable cash backs on a monthly basis. A rebate is literally a share of the brokers profit.

Does your broker send messages such as re-quote, wait, trading context is busy, quote is accepted, request is in process and so on? Yes? Then you are trading
against a classic scamming broker.

Errors such as above do not exist within the real market. Real liquidity providers will try to execute every order instantly and as effectively as possible. There are never re-quotes, however, in times of high volatility, orders can be filled at “the next available price”.

Error messages are caused for a very simple and logical reason, basically, the software used by your broker is looking for the worst possible price relative to the market to fill your order at, the dealing desk will then take the decision to keep your order in house or whether to hedge the risk and still make money on the worst price given to you, naturally, they are trading at a much better price.

Does your broker restrict scalping strategies or do they enforce a minimum Stop Loss or Take Profit, sometimes 5 or 10 pips away from your open price? If yes, they operate a dealing desk and are fully trading against you.

The enforcement on stop limits and levels is a ploy that forces the trader to stay in the trade for longer periods. If you are a scalper, you are likely to open and close forex orders within minutes or even seconds for small profits, the stop levels do not allow you to do that and therefore effect your profitability dramatically.

Does your broker allow EA trading? If no, then these are 100% market makers/dealing desk brokers.

Yadix offers no trading restrictions and accepts all EAs