There are many factors in trading which can have a significant effect on your trading outcome. The first and most fundamental one is that your orders will always be performed directly in the market and that is rarely done.
Typically, they are handled by the “market makers broker” who has a profit on your loss. Just if your brokers insist they are legitimate on STP/ECN, that doesn’t imply a genuine broker. They can’t operate as a direct market maker based on regulations (license), but what they’re doing is transferring the transactions to another organisation for execution, mostly to the market maker, who is owned by the same firm. When working with Best Forex Brokers you will never experience this.
The Forex industry includes several stories of scam brokers. “Bucket-shop” companies collect funds from investors and then literally run away, or establish unfair trading patterns in which each trader continuously goes bankrupt. Those are clearly illegal and can be listed as real scams. They merit their specific program and are widely reported over the Internet. But licensed Forex brokers have a built set of strategies to have more from their investors in unethical ways.
“No fees, no commissions, no hidden costs”- these are pleasant phrases on advertisements. In fact, every broker has a legal responsibility to offer a differentiating points. There are at least 4 strategies of that sort:
SIGNS OF UNRELIABLE FOREX BROKERS!
This is the all-time favourite of brokers! Spread widening typically occurs at irregular intervals. Broker may refuse to assign your position at a price that it quotes (even if it is thoroughly up-to-date) and safeguard themselves by imposing a wider spread on the trader.
There’s nothing inappropriate with that if it’s done publicly by the broker of course. In fact, nothing prohibits brokers from applying a broader spread than required to obtain several pips from the traders.
What can you do to stop expanding? Choose a broker not known for excessive expansion, or simply seek not to trade during high volatility intervals (important news updates)
It’s not deceitful on its own, as the broker’s liquidity suppliers can target market segmentation pretty fast and the broker can sometimes simply have no option but to execute your order at a slightly worse price.
However, some brokers employ slippage for their profit and recommend you to purchase a currency pair at a price higher than they will (or trade at a slightly lower price). The difference is in their constant benefit.
Slippage is inevitable for brokers, you can try joining one with fewer. You may also seek to prevent market order trading and move to limit orders; add reduced slippage parameter in orders when using EAs.
What is overnight interest rates?
Brokers’ bills and overnight charges swap regarding the difference between the currency pair’s short-term interest rates and the central bank settings.
Unfortunately, the disparity may not always be rigid – if the broker charges the swap from the investor, it will compensate more than required. If the gap is small (for example, EUR/GBP currently has 1.0 percent and 0.5 percent interest rates, USD – JPY has 0–0.25 percent and 0.1 percent respectively) – irrespective of whether you’re long or short on the pair.
Strictly, on day trading, go for no-swap no-deposit trading accounts picking a broker by examining their trading conditions for better swaps which will prevent this trick.
This is not even a deceitful brokering technique – it’s usually traders who just fall for the larger volumes and brokers are happy to sell such considerable quantities, as they will boost their earnings per spread pip.
If you are serious about trading Forex, you have to know the appropriate broker which has its mt4 trading platform (MT4 or anything else) linked to one of the inter-bank trading platforms on a bridge.
So, how can we figure out that they are not? Here are some tips:
If you place your position and execution too slow
If your SL is hit and the price is a long way off
If your order has been closed over or below your SL (slippage)
If you execute your pending order far from price (slippage)
If you can’t close your order beneficially
If the price varies from other brokers
If you trade well and your broker wants to interrupt your business