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Find out how leverage, a flexible and customizable tool, magnifies both gains and losses in the forex markets.

Spot Currencies FHBC offers you instant access to the most traded marketplace worldwide, with over 60 Forex currency pairs, low tight spreads and no extra commissions. This is why currency transactions must be carried out in sizable amounts, allowing these minute price movements to be translated into larger profits when magnified through the use of leverage. XM Group is a group of regulated online brokers. While this basic assumption has some merit

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December 28, | Forex Brokers Choosing a forex broker can be a very daunting task because the number of available options is overwhelming. With so many brokers advertising themselves as being the best, people go to specialized websites to read reviews and see broker rankings hoping they will find which broker is their best choice.

To calculate margin-based leverage , divide the total transaction value by the amount of margin you are required to put up. Thus, your margin-based leverage will be For a margin requirement of just 0. This is because the investor can always attribute more than the required margin for any position. This indicates that the real leverage, not margin-based leverage, is the stronger indicator of profit and loss.

To calculate the real leverage you are currently using, simply divide the total face value of your open positions by your trading capital. This also means that the margin-based leverage is equal to the maximum real leverage a trader can use. Since most traders do not use their entire accounts as margin for each of their trades, their real leverage tends to differ from their margin-based leverage. Generally, a trader should not use all of their available margin.

A trader should only use leverage when the advantage is clearly on their side. Once the amount of risk in terms of the number of pips is known, it is possible to determine the potential loss of capital. Traders may also calculate the level of margin that they should use.

In the foreign exchange markets, leverage is commonly as high as Many traders believe the reason that forex market makers offer such high leverage is because leverage is a function of risk. They know that if the account is properly managed, the risk will also be very manageable, or else they would not offer the leverage. Also, because the spot cash forex markets are so large and liquid, the ability to enter and exit a trade at the desired level is much easier than in other less liquid markets.

In trading, we monitor the currency movements in pips, which is the smallest change in currency price and depends on the currency pair. These movements are really just fractions of a cent. This is why currency transactions must be carried out in sizable amounts, allowing these minute price movements to be translated into larger profits when magnified through the use of leverage.

This is where the double-edged sword comes in, as real leverage has the potential to enlarge your profits or losses by the same magnitude. The greater the amount of leverage on capital you apply, the higher the risk that you will assume. While they are suitable for small accounts because small winnings are not an issue for such large international brokers, they are not recommended for large accounts because of the conflict of interest.

If a market maker is faced with a trader that wins large amounts of money on a regular basis it will have to hedge the risks by covering the trades with a liquidity provider. However, the dealing desk will have difficulties in replicating the trades instantly, especially during news trading or if the trader is scalping. This may force the broker to resort to "tricks" such as requotes, poor execution, slippage, platform malfunctioning or even stop loss hunting. While reputable market makers will not engage in such shameful tactics, they may still be forced to limit your activity during news time and will not allow scalping.

In the end, the broker wants to make a profit and if it is losing money with a client it must do something to change that. Hedging the trades is a solution, but the market makers are less prepared to efficiently do that than ECN brokers. Because of the way they operate, market makers will usually advertise themselves in a way that attracts amateur traders and is not attractive for professionals. Casual traders are the most profitable for market makers as they have a very small rate of profitability.

ECN stands for Electronic Communication Network and is an electronic system that connects retail traders, brokers and liquidity providers in an exchange-like environment. An ECN broker is a forex broker that processes all orders electronically directly to its liquidity providers without a dealing desk. The broker's platform is connected directly to the liquidity providers usually big banks such as JP Morgan, Barclays or City and the trades are executed against the liquidity provider offering the best quote.

A good ECN broker uses many liquidity providers in order to have lower spreads for its customers, since the system will connect the trader with the best quote available in the system. Such brokers are also known as STP brokers Straight-Through Processing since they process the trade directly to a third party instead of being market makers. They are also referred to as "No Dealing Desk" brokers. When using a STP broker your final counterparty will be a third party, which is one of the broker's liquidity providers.

This means the broker is not having a conflict of interest with you because it will not make money from your losses. But how does this work? By giving you direct access to the network of liquidity providers to which the broker is connected to, you trade on behalf of the broker directly against the liquidity providers offering the best quotes. I know this may sound a bit confusing and hard to understand, but think of it as if you are trading directly from the broker's account against the liquidity providers.

If your trade is profitable the broker takes money from the liquidity providers and when your trade is a loser the broker will give money to the liquidity providers. This means that whatever you win, you win from the liquidity providers, not from the broker, and whatever you lose, you lose to the liquidity providers, not to your broker.

Ok, so if a STP broker allows you to trade directly against its liquidity providers, how does the broker make its money? There are two ways for the broker to do that:. Let's say the broker adds a 1 pip markup. If the liquidity provider has a spread of 1 pip, the platform will display a spread of 2 pips. If you make a trade and market moves pips in your favor you will win the value of 98 pips minus the 2 pips spread and your broker will win 1 pip the markup.

The liquidity provider will lose 99 pips minus its 1 pip spread. In the opposite situation, when the market moves pips against you, you will lose pips plus the 2 pips spread and your broker will still win 1 pip the markup. In both situations the broker wins, so there is no conflict of interest between you and your broker as the broker makes money when you trade, not matter if you win or if you lose. In this case the broker makes its money out of the commissions for allowing you to trade directly against the liquidity providers without any markup at very low spreads the actual interbank spreads.

In both situations, the broker is not your final counterparty and it is not losing money when you make a profit. An ECN broker will always prefer for its traders to win, because this will ensure you trade more volume and for a longer period of time. The broker makes money only from the volumes you trade, so it will be happy to have a winning trader.

This is why it is highly recommended to open an account with such broker when you intend to deposit large amounts of money and trade high volumes. It is important to understand that most retail forex brokers are market makers. While the ECN model is profitable for the broker on both winning and losing traders, it also carries additional costs and generates less profits from losing traders. The broker must run a very powerful computer network with high speed connections and maintain a good relationship with several liquidity providers in order to be part of a good ECN with low spreads and fast execution.

In addition to that, the broker's markup or commission is only a part of the total spread because the liquidity provider has its own spreads. If a trader loses all his money by paying spreads assuming he doesn't win or lose a single pip during his trading sessions until he goes bust , a market maker would take all the trader's money.

In contrast, a STP broker will win only a part of it, while the liquidity providers will earn the rest. Considering the above, it is no wonder why most brokers prefer to operate only as market makers and sometimes hedge the trades of very profitable traders. The costs associated with direct market access are also the reason why micro and mini accounts are always provided in a market-making environment where the broker will always be your final counterparty.

Such traders are also very risky to trade against, so the ECN model is in the broker's advantage because it is risk free. This is why some brokers are giving direct market access to the traders that choose to open the standard or VIP accounts. The DMA accounts will always have fractional pips the spread can be 2. Real market conditions where liquidity providers compete against each other to offer better spreads will always result in variable spreads that tend to be lower when there is little volatility and will increase in time of high volatility such as during news.

Mini lots and micro lots are never used by liquidity providers. In the following paragraph I will list three brokers that offer very competitive STP accounts for big traders. They are the ones I consider to be the best choices available right now, in no particular order. The three broker accounts I will present below are very reliable choices for high rollers. I am trading with all of them and I am very pleased with their service, since I had no major issues so far. It is worth to check them all and decide for yourself which broker is a better choice for you.

It is probably the best ECN broker in the world and the ideal broker for big traders who want real market access with very low spreads. As an Australian financial services company, IC Markets is a very safe broker able to handle very large accounts. It offers real direct market access thanks to a pool of Tier 1 liquidity providers that include the following banks: Since all trades are processed directly to the liquidity providers, IC Markets has no problem with scalping.

Overall, IC Markets is a top tier broker based on a very solid jurisdiction. If you want to find out more about it you can visit their website: Vincent and The Grenadines. While Hot Forex offers many account types to cater to all type of investors, we recommend the VIP account for large investors. The VIP account is directly connected to their network of liquidity providers and allows you to trade directly on the interbank market. They can go as low as 0. This is the equivalent of a 0.

XM Group is a group of regulated online brokers. In January XM Group had over , clients worldwide, making it one of the largest forex brokers in the world. While some traders may be surprised that I reccomend a broker based in Cyprus and also a Market Maker for large accounts, the truth is that after trying lots of brokers I ended up doing most of my trading with XM Group. This broker never failed me and I am trading large volumes with them for over two years already. XM Group is based in Cyprus because the people behind this broker are Cypriots themselves.

The founder and CEO of the company is Mr. Constantinos Cleanthous and all the management is comprised of Cypriots as well, so it was just a normal decision to set the company in their home contry. If you never had an account with XM Group , then I really think you should open one and try them, because chances are you will stick with them for most of your trading like I did.

This is the broker that anyone must try. XM Group offers three account types, the Micro account, the Standard Account with no commission but with higher spreads and the Zero Account with commission but with very low spreads.

All accounts are very competitive and it is hard to say which one has lower costs. The XM Group Accounts stand out for many reasons. Here are some of the benefits for big investors:. XM Group partners with investment grade banks and uses segregated accounts to ensure security. This means you can trade huge amounts of money. Leverage applies to all the EU regulated entities of the group. Leverage depends on the financial instrument traded.

XM Group claims that XM Group allows scalping as well as any automated trading through EAs.

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