META TRADER 4POWERFULL TOOLS FOR FOREX BROKERS TO CHEAT AND

STEAL YOUR MONEY

Type of Brokers

Dealing Desk (DD) Market Maker

Non Dealing Desk (NDD)

Strike Through Processing (STP)

Electronic Communication

Broker (ECN)

True Direct Market Access

(DMA)

One-Touch DMAHybrid of STP

and ECN

THE ROLE OF FOREX BROKERAGE FIRMS

THE FOREX MARKET IS A DECENTRALIZED AREA WHERE NO ACTUAL MARKETPLACE EXISTS FOR

THE TRADER AND WHERE THERE ARE NO “STANDARDS” IN THE EXCHANGE RATE.

BROKERS OFFER VARIOUS DEALS TO THEIR TRADERS AND WHILE THE INVESTMENT IS YOUR

DECISION, YOU MUST RELY ON YOUR BROKER TO MAKE THE TRANSACTIONS FOR THE TRADE.

DEALING DESK VS. NON-DEALING DESK BROKERS

DEALING DESK• DEALING DESK BROKERS (DD), WHICH ARE ALSO CALLED

MARKET MAKERS AND DEALERS.• MARKET MAKERS MAKE MONEY THROUGH SPREADS AND

PROVIDE LIQUIDITY TO THEIR CLIENTS.• WHILE THESE TYPES OF BROKERS OFTEN DISPLAY THEIR

OWN QUOTES, THEY ARE LEGALLY OBLIGED BY NATIONAL AND INTERNATIONAL REGULATORY AUTHORITIES TO SHOW THE BEST POSSIBLE PRICE TO THEIR CLIENTS.

• PRICES THEY OFFER MAY DIFFER TO THE ACTUAL MARKET PRICES.

• ALTHOUGH, MARKET MAKERS LITERALLY TAKE THE OTHER SIDE OF A CLIENT’S TRADE TO MINIMIZE RISK (DIFFERENT DEALING DESK BROKERS HAVE DIFFERENT RISK MANAGEMENT POLICIES).

NON-DEALING DESK• NON-DEALING DESK (NDD), NDD BROKERS DO NOT TAKE THE

OPPOSITE SIDE OF THEIR CLIENT’S TRADE.• THEY SIMPLY LINK THE TRADER’S PLATFORM TO THE INTERBANK

MARKET AND MAY EITHER CHARGE VERY MINIMAL COMMISSIONS FOR TRADING OR SLIGHTLY INCREASE THE SPREAD, OR BOTH.

• NDD BROKERS CAN BE STRAIGHT THROUGH PROCESSING BROKER (STP), ELECTRONIC COMMUNICATION BROKER (ECN), OR A HYBRID OF STP AND ECN (STP+ECN).

• ECN BROKERS OFFER DIRECT MARKET ACCESS (DMA) THROUGH AUTOMATED SYSTEMS TO ALLOW THEIR CLIENTS’ ORDERS TO INTERACT WITH THE ORDERS OF OTHER PARTICIPANTS IN THE EXCHANGE MARKET.

• THESE MARKET PARTICIPANTS COULD BE BANKS, HEDGE FUNDS, FINANCIAL INSTITUTIONS, RETAIL TRADERS, AND EVEN OTHER BROKERS. BELOW YOU’LL BE ABLE TO SEE A CHART ILLUSTRATING THESE DIFFERENT BROKER TYPES.

THE TROUBLETHESE ARE SOME OF THE WAYS BROKERS ‘GAME’ UNSUSPECTING TRADERS

BY WINNING THE TRADER’S TRUST USING VERY OFFICIAL WEB PAGES

BY CHARGING EXTRA OVERNIGHT INTEREST RATES

• BROKERS CHARGE AND PAY DISPROPORTIONATE SWAPS BASED ON THE GAP BETWEEN SHORT-TERM INTEREST RATES ASSOCIATED WITH CURRENCIES PAIRS SET BY CENTRAL BANKS. THIS GAP IS NOT FIXED; IF THE BROKER SPENDS THE SWAP FROM THE CUSTOMER, IT WILL CHARGE MORE THAN NEEDED AND IF THE BROKER PAYS THE SWAP, IT WILL PAY LESS THAN NEEDED. WHEN THE GAP IS SMALL, THE CUSTOMER PAYS THE SWAP BOTH WAYS; IT WILL NOT MATTER IF ONE IS LONG OR SHORT ON THE PAIR.

BY ENGAGING IN SPREAD WIDENING

• THIS MOSTLY OCCURS DURING TIMES OF HIGH VOLATILITY. THE BROKER MAY FAIL TO ALLOCATE YOUR POSITION, EVEN IF IT IS COMPLETELY UPDATED, AT THE PRICE IT QUOTES, AND SAVES HIMSELF BY APPLYING A WIDER THAN USUAL SPREAD ON THE CUSTOMER. NOTHING CAN REALLY KEEP THE BROKER FROM IMPOSING A WIDER THAN USUAL SPREAD TO EARN PROFIT FROM THE TRADER. IF THE BROKER CAN DO THIS, HONESTLY, THERE IS NOT MUCH THAT YOU CAN DO TO STOP HIM.

BY ENCOURAGING OVER-LEVERAGING

• ONE WAY BROKERS TRICK TRADERS IS OVER-LEVERAGING. THE BROKERS ARE MORE THAN HAPPY TO OFFER LARGER VOLUMES AND MOST TRADERS FALL FOR THESE LARGE VOLUMES. THIS IS NOT REALLY ILLEGAL, BUT IT TAKES ADVANTAGE OF THE TRADERS’ PSYCHOLOGY. TRADERS WHO GET ATTRACTED BY LARGER VOLUMES END UP BENEFITING THE BROKER AND HARMING THEMSELVES. ONCE AGAIN, THERE IS NOTHING MUCH THAT YOU CAN DO TO PREVENT THIS FROM HAPPENING EXCEPT MAKING SMARTER CHOICES AND TRUSTING YOUR INSTINCTS.

SLIPPAGE

• THE BROKER’S LIQUIDITY PROVIDERS MAY CHANGE PRICES PRETTY FAST AND THE BROKER MAY SIMPLY HAVE NO CHOICE THAN TO EXECUTE YOUR ORDER AT A SLIGHTLY WORSE PRICE. BUT SOME BROKERS USE SLIPPAGE FOR THEIR OWN ADVANTAGE AND OFFER YOU TO BUY A CURRENCY PAIR AT A SLIGHTLY HIGHER (OR SELL AT A SLIGHTLY LOWER) PRICE THAN THEY COULD HAVE. THE DIFFERENCE IS THE PROFIT THEY END UP GETTING. IT’S ALMOST IMPOSSIBLE TO FIND A BROKER WITHOUT SLIPPAGE BUT YOU CAN TRY.

BY BOYCOTT THEIR OWN TRADERS/CLIENTS

• SOMETIMES, BROKERS EVEN BOYCOTT THE TRADERS AND TRY TO BOYCOTT THEM COMPLETELY. THIS USUALLY HAPPENS WHEN A TRADER IS RECEIVING A SIGNIFICANT PROFIT. THE MOMENT YOUR PROFIT HISTORY BECOMES CONSISTENT, BROKERS DO WHATEVER THEY CAN DO TO STOP YOU FROM GAINING MORE PROFITS THROUGH THEM. THIS MAY SOUND UNPROFESSIONAL AND EVEN STRANGE BUT IT IS TRUE. THIS IS BECAUSE IN THE END, A BROKER DOES NOT CARE WHETHER HIS/HER CLIENT BENEFITS AS LONG AS THEY ARE PROFITING THEMSELVES.

BY OFFERING CLEVER SOFTWARE TECHNOLOGY TO LURE TRADERS IN

• WHEN YOU SEARCH FOR A BROKER, YOU WILL FIND COUNTLESS WEB RESULTS FOR ONLINE BROKERS TRYING TO HELP YOU OUT THROUGH THEIR “UNIQUE” SOFTWARE TECHNOLOGIES. NEEDLESS TO SAY, THE VERY SOUND OF AN ONLINE BROKER IS FISHY. THESE ONLINE BROKERS USE SPECIAL KINDS OF SOFTWARE THAT HELP THEM SCAM YOU OUT OF YOUR MONEY. AS MENTIONED EARLIER IN THE ARTICLE, THEIR MAIN AIM IS TO SOMEHOW TRANSFER YOUR MONEY INTO THEIR OWN POCKETS. WITH ALL THE WEBSITES THESE DAYS, THIS MAKES IT EASIER FOR THEM TO DO.

BY OFFERING GOOD INITIAL CUSTOMER SERVICE

• CUSTOMER SERVICE AND SUPPORT IS INCREDIBLY IMPORTANT FOR ANY TYPE OF BUSINESS, INCLUDING A FOREX BROKER. IN FOREX TRADING, YOU WANT YOUR BROKER TO BE ABLE TO ANSWER ALL OF YOUR QUESTIONS AND QUERIES. IF YOUR BROKER CANNOT RESPOND TO YOUR MESSAGES AND PROBLEMS, MOVE ON. MAKE SURE THAT YOUR CHOSEN BROKER HAS A GOOD CUSTOMER SERVICE TEAM – IF A BROKER DOES NOT, THIS WILL INDICATE THAT THEY ARE A CHEAT. IF YOU NOTICE ANY SUSPICIOUS ACTIVITY REGARDING YOUR INVESTMENTS AND YOUR BROKER CANNOT (OR DOES NOT EVEN BOTHER TO) EXPLAIN, THEN A GOOD SUGGESTION WOULD BE TO REPLACE HIM.

BY STOP-HUNTING

• SUPPOSE YOU THINK A CURRENCY IS HEADING UP. YOU ENTER A POSITION AT 123.40 AND YOU SET YOUR STOP AT 123.05, SLIGHTLY BELOW AN OBVIOUS DOUBLE BOTTOM. UNFORTUNATELY, THE TRADE BEGINS TO GO AGAINST YOU AND BREAKS DOWN THROUGH SUPPORT. YOUR STOP IS HIT AND YOU ARE OUT. THIS IS WHEN YOU MIGHT START TO FEEL RELIEF THAT YOU HAD THAT STOP IN PLACE. WHO KNOWS HOW FAR IT COULD DROP, RIGHT? WRONG!

• GUESS WHAT HAPPENS NEXT. AFTER TAKING OUT YOUR STOP, THE PRICE TURNS BACK AND HEADS NORTH, JUST AS YOU ORIGINALLY THOUGHT. THIS IS HOW YOUR BROKER MAKES HIS MONEY. THE SOLUTION TO THIS COULD BE TO HIDE YOUR STOP LOSS. IT IS NOT GUARANTEED TO HELP, BUT AT LEAST YOU WILL BE SURE THAT YOUR BROKER DOES NOT SEE YOUR STOP LOSS AND HAVE A CHANCE TO TAKE IT OUT THROUGH DISHONEST MEANS.

BY TAKING THE ROLE OF BUCKET SHOPS

• BUCKET SHOPS ARE FRAUDULENT BROKERAGE FIRMS THAT “BOOK” A CLIENT’S ORDERS BUT NEVER REALLY EXECUTE THEM ON AN EXCHANGE. THEY ARE NAMED SUCH BECAUSE THESE BROKERS PUT THEIR CLIENTS’ PHONE-IN ORDERS IN SLIPS THEN DROP THEM (THE SLIPS, NOT THE CLIENTS) IN A TINY BUCKET INSTEAD OF ACTUALLY EXECUTING. WITHOUT THE REAL TRANSACTIONS, THE CLIENT IS ACTUALLY BETTING AGAINST THE BUCKET SHOP OPERATORS ALSO KNOWN AS BUCKETEERS. THIS IS ANOTHER DANGEROUS TYPE OF BROKER STRATEGY THAT IS BOTH DISHONEST AND ILLEGAL IN MOST COUNTRIES.

TRADING PLATFORM RELIABILITYCOMMONLY USED BY FOREX BROKERS

MT4 AND MT5

• THE METATRADER TRADING PLATFORM IS COMMONLY USED BY MOST FOREX BROKERS, WHICH HAS HUNDREDS OF CUSTOM-MADE INDICATORS AND TEMPLATES FOR EVERY TRADING STRATEGY.

• OTHER BROKERS HAVE MORE POWERFUL CUSTOM TRADING PLATFORMS. DEPENDING ON THE TRADER’S TRADING HARDWARE AND SOFTWARE CHARACTERISTICS, ONE MIGHT PREFER A WEB-BASED TRADING PLATFORM RATHER THAN A DESKTOP APPLICATION PLATFORM SUCH AS THE MT4 AND MT5.

TRANSACTION COSTS AND COMMISSION STRUCTURES

UNIQUE FEATURES THAT MANY BROKERS USE

COMMISION

• THE FOREX MARKET HAS MANY UNIQUE FEATURES THAT MANY BROKERS USE TO ENTICE TRADERS TO OPEN A LIVE ACCOUNT WITH THEM. SOME PROMISE NO REGULATORY FEES AND EXCHANGE FEES, OTHERS PRESENT NO DATA FEES, AND MOST COMMON TO ALL, NO COMMISSIONS. HOWEVER, NO MATTER WHAT TYPE OF FOREX TRADER YOU ARE, YOU ARE ALWAYS SUBJECTED TO TRANSACTION COST.

• EVERY TIME YOU ENTER A TRADE, YOU ARE ALWAYS REQUIRED TO PAY FOR EITHER THE PRICE SPREAD OR A COMMISSION. SOME BROKERS JUST CHARGE THE SPREAD, OTHERS CHARGE COMMISSIONS PER TRANSACTION MADE, WHILE OTHER BROKERS CHARGE YOU BOTH.

COMMISSIONS INCLUDED IN THE SPREAD

• BROKERS WHO DON’T CHARGE SEPARATE COMMISSIONS MAKE MONEY THROUGH THE SPREAD. THE LOWER THE SPREAD, THE GREATER THE HYPOTHETICAL PROFIT A TRADER CAN MAKE. DIFFERENT BROKERS CHARGE DIFFERENT NUMBER OF SPREAD PIPS. HOWEVER, PAYING A 10 PIP SPREAD ON MAJOR CURRENCY PAIRS IS A SIGN THAT THERE IS SOMETHING ODD WITH THE BROKER. MOST BROKERS PRESENT THE LOWEST SPREAD THEY CAN OFFER BECAUSE TRADERS HAVE A HIGHER CHANCE OF PROFITING WITH LOWER SPREADS.

• YOU MAY CHOOSE THE BROKER WITH THE MOST AFFORDABLE AND CHEAPEST SPREAD. HOWEVER, YOU HAVE TO BALANCE BROKER RELIABILITY AND LOW TRANSACTION COSTS. CHOOSING THE BROKER WITH THE LOWEST SPREAD IS IMPORTANT, BUT IT SHOULD NOT OVERRIDE THE MOST IMPORTANT FACTORS IN CHOOSING A BROKER. A COMPETITIVE SPREAD IS USELESS IF THE OTHER FACTORS ARE POOR.

CONT’D …

• DEPENDING ON THE BROKER AND ACCOUNT TYPE THEY OFFER, THERE ARE THREE COMMISSION STRUCTURES USED BY BROKERS:• VARIABLE SPREAD• FIXED SPREAD• COMMISSION CHARGE BASED ON A PERCENTAGE OF THE SPREAD

• EVERY TIME YOU ENTER A TRADE, YOU WILL ALWAYS START WITH A NEGATIVE PROFIT EVEN IF THE PRICE MOVED IN THE POSITIVE DIRECTION. THE PRICE HAS TO CHANGE ENOUGH IN ORDER TO COVER THE TRADING COST, THE SPREAD.

THANKS YOUIWAN CAHYO SURYADI