Are Forex Brokers to Blame for Traders Losing Money

Since most retail traders lose money, it is easy to blame the broker who acts like a market maker and takes the other side of the trade. At some point, the trader must be accountable for his/her success or failure rather than blaming it on the broker.

What is a forex market maker?

A forex market maker is a trading firm (i.e. broker) that buys and sells a currency at an openly quoted price in the over-the-counter market. Forex market makers take the other side (act as a counter party) of trades by retail traders, as opposed to passing those trades directly toi their liquidity providers. In other words, a forex broker, acting as a market maker, sells when a retail trader buys or buys when a retail trader sells a currency.

Know the ground rules and adjust accordingly

I need to make it clear that I am not here to defend forex brokers, including those who act as market makers. As I noted, traders have to take responsibility for losing as well as take credit for winning. It should not matter to a trader if a broker is a market maker as long as you get consistent pricing/executions and your stops are being treated fairly.

The key words here are consistent and fairly. Once you know the broker’s ground rules, you can adjust your trading accordingly (e.g. spreads widening ahead or after data, etc) assuming you are being given a level playing field to trade. If not, then look for another broker.

Is the deck stacked against the retail trader?

The main issue with a market maker or any forex broker is that most traders have only one account so are dependent on that broker for entering and exiting trades. There is no common clearing. If there was common clearing, where you could trade with one broker and exit with another, it would force a broker to provide a consistent service. This is why I emphasized the words consistent and fairly. In any case, someone has to take the other side of your trade, whether it be a market maker, ECN or a bank/liquidity provider if there is a no dealing desk.

So, success or failure does not depend on whether you are trading with a market maker. It is determined by a variety of factors, such as your individual skill, ability to manage risk, disciplined money management to name a few. The market maker, although it may be betting on you to lose, is not the reason why retail traders lose money.

Contact jay@global-view.com with any questions or comments.