Chapter 12. Is My Broker Friend or Foe?

Sometimes the best position in the market is not having one. Learning to walk away from a difficult market, a bad mood, or a tough day is often the best lesson a trader can learn.: 2007 "Fxstreet.com. The Forex Market." All Rights Reserved.

Figure 12.1. Sometimes the best position in the market is not having one. Learning to walk away from a difficult market, a bad mood, or a tough day is often the best lesson a trader can learn.: 2007 "Fxstreet.com. The Forex Market." All Rights Reserved.

One of the most common questions I get is whether brokers run stops. I'm not a broker, but I have to say that sometimes this question starts to take on a mythology like an X Files conspiracy theory. Stops are run in any market where market makers or pit traders or whoever can anticipate a large number of orders sitting at a fairly predictable price level or area. It's like shooting ducks in a barrel. . .not that I have anything against ducks.

What's interesting is that many traders feel that someone is out to get them. In a zero sum game, that feeling of suspicion is not entirely misplaced. Someone is on the other side of all trades because for every buyer you need a seller. In forex, since there is not a centralized exchange, your broker is your liquidity provider and therefore is taking the other side of your trade. I am simplifying this, but that's the gist of it. Now if your broker gives access to a large pool of liquidity providers as there is a new breed of brokers that don't take the other side of your trade but rather routes your order to a larger pool, it is someone else who will take ...

Get Forex on Five Hours a Week: How to Make Money Trading on Your Own Time now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.