I am always asked so many questions about trading. Many of these questions are related to Forex because retail Forex trading is becoming more popular every day among those who want to have some extra income or even become rich. Why?

People love to sit at the computer and make a lot of money from the comfort of their homes, by clicking on the buy and sell buttons only. Therefore, when they hear about Forex or currency trading, they get interested and start trying it, because it looks so easy at the beginning. But this can be the beginning of a long journey that doesn’t end to success most of the time.

You read and hear everywhere that over 95% of the traders lose. This is so true. This fact causes those who want to try Forex trading, to ask some special questions:

  1. Is it really possible to make money through Forex trading?
  2. How long does it take to become a profitable Forex trader who makes money consistently?
  3. How much money can one make through Forex trading?
  4. Is it possible to become a millionaire through Forex trading?

These are very common questions. I have answered some of these questions in some of the previously published articles on this site:

However, those who are smarter and more experienced, or, people who are above the average, and those who know how hard it is to make money in this world, ask some more specific questions. They know it is possible to make money through trading theoretically and with demo accounts. They are worried about the problems that may show up after that. For example they ask:

  • Do Forex brokers really pay the consistently profitable traders?
  • Are Forex brokers happy with the small commission or markups they make through each transaction? Is this their only source of income?
  • Do professional Forex traders trade through Forex brokers or they prefer to choose a different way?

As you see, it is harder to answer these questions precisely and in details, because they are more specific questions that are usually asked by a group of people who cannot be convinced so easily. They have no problem to learn how to trade and become consistently profitable traders. They think about the next stage which is receiving the money they make through trading. Indeed, the questions these people ask is the foundation of this article. In this article, I am trying to talk about some facts and myths about Forex trading that all Forex traders, especially novice traders who are still learning or want to start learning, have to know.

The world changes every second. The changes are much more faster in economic world, because it is where money is involved. It is where fear and greed make some people lose, and help some others make money. Everybody is there for one important reason: Making Money…

But the question is who really makes money there?

You cannot become a profitable Forex trader overnight. You have to follow the right track and spend some time to become a profitable Forex trader who makes money consistently. Although you don’t have to spend any money to learn how to trade, the time you have to spend on it is even more valuable than your money. You have to risk your time, and sometimes both your time and money to learn something new. You have to give to get. This is an important rule in this world. You don’t gain anything if you don’t lose something for it. And time is the first and most important thing you invest when you start learning something. Your time looks like a free asset, because you can always find some free time for everything. But it is not free in reality. The time you spend on something, can never be recovered. When it is gone, it is gone…

So you have to be careful not to waste your time on something that you don’t know everything about. Trading is not an exception. You just hear that it makes money. But there are a lot more that you have to know about it, before you can make money with it.

So let’s start from some of the more specific questions that smart and precise people ask about Forex trading.

First, I’d like to answer whether it is possible to make money through Forex trading, or it is wasting of time?

It is possible to make money through Forex trading. There are so many who are doing it.

However, please note that it is not only your knowledge and experience that are needed to make money. There is an important party that has a vital role in your Forex trading journey: The Broker

As a retail trader, you access the currency market through a broker. Your broker connects your computer to the limitless world of currencies. You install the broker’s platform on your computer and then you can place your orders on the currency market through the platform. Although it looks so simple, there is a too complicated process behind the scene.

I have already written so many articles about brokers. Some of those articles are published on this site. I recommend you to read them to learn how brokers and liquidity providers work.

Your broker is very important. It can make you lose money even when you are a good trader and you have taken the right position.

Brokers offer their services to make money. They are not charitable organizations. They are after money and they do everything they can, to make more money. Government regulations can limit the ways that brokers cheat you (read this: 6 Ways Forex Brokers Cheat You). However, it cannot prevent all the cheating ways. It is not illegal to be a market maker broker, because being a market maker broker doesn’t necessarily mean that they cheat their clients (read this: Is It Bad or Illegal to Be a Market Maker?). However, the fact that your loss is the market maker broker’s profit, and visa versa, always makes us think that they should try to cheat and make more money, and prevent you from making profit. They don’t like you to make profit, because they have to pay your profit.

Even if all market maker brokers cheat, still there is another option for retail traders: They can open their live accounts with ECN/STP brokers. You don’t have to open an account with a market maker broker. But the problem is the more common and popular Forex trading becomes, the more greedy Forex related companies, including brokers, will become also. It is becoming harder every day to know whether a broker is really ECN/STP or market maker. Unfortunately, in most cases, there is no explanation on brokers’ websites, clarifying whether they are market maker or ECN/STP.

Even if they claim to be ECN/STP brokers, they don’t clarify how many liquidity providers their platforms are connected to, and who their liquidity providers are. Therefore, it is not clear whether they are true or false ECN/STP brokers (I have explained about the differences here).

Before you continue reading this article, you can refer to the below articles if you don’t know what market maker and ECN/STP brokers are:

There are so many brokers who claim to be ECN/STP, but it seems they are not. They accept too small accounts (like $100 accounts), offer high leverage (like 500:1) and micro-lots (0.01 lot). These are the things that true ECN/STP brokers that route your orders to strong and real liquidity providers, cannot offer. Although some brokers are known as ECN/STP brokers, they place the small accounts on a market maker system, because they know that almost all of those who open small accounts are not professional traders and will wipe out their accounts sooner than later. Therefore, the broker prefers to earn all the money these traders lose.

On the other hand, liquidity providers don’t accept to work with too small accounts, nor do they support micro-lots. So, there is no option for the broker, but offering no service to those who want to open small accounts, or placing them on a market maker system that has no connection to liquidity providers.

The huge money that market maker brokers make, is a big motivation for ECN/STP brokers to think about making more money. While the broker can make $500 from a $500 account when it becomes wiped out by the trader, isn’t it stupid to make $10 only and let the residue goes to the liquidity provider’s pocket?

This makes the ECN/STP brokers think about having a market maker system at the side.

A novice trader can easily wipe out a $500 by taking few positions. These positions cannot make more than few dollars for an ECN/STP broker because they only charge a commission. Even if they charge markup (which is illegal) also, they will not make more than $10-20. However, when the $500 account is placed on a market maker system, all the $500 is the broker’s profit when the trader blows up the account.

This is what brokers know very well. After a while of working, ECN/STP brokers see that although they work too hard, the money they make, cannot even cover their expenses sometimes. Maintaining ECN/STP system, having constant and stable connection to liquidity providers and keeping the system up and running all the time, is not that easy. It is too complicated and needs a lot of work and money. That is not a big deal when the profit they make covers all the expenses. But it is a big problem when the money they make is not enough even to maintain the system and pay the employees on time.

Therefore, they think about making more money. First they start placing the small accounts on a market maker system. Then, they move the bigger losing accounts to the market maker system too. That doesn’t make any difference for most traders, because they lose anyway, no matter on what system, ECN/STP or market maker, their accounts are placed. The problem comes when the broker tries to make the traders lose even more, while their accounts are placed on a market maker system: 6 Ways Forex Brokers Cheat You

That is why the more popular Forex trading becomes, the harder it becomes to distinguish whether a broker is a real and true ECN/STP or a market maker, because many of them have both systems at the same time, and they don’t enlighten people about this. Most of the novice traders know nothing about these systems. They just open live accounts blindly.

I know what I am saying in this post irritates the brokers, as well as the introducing brokers who make money by referring you to brokers. But fact is fact. So far, this website has prevented so many traders from losing their hard-earned money to the scams. This is what we will keep doing.

Anyways!

The other problem comes when you are a profitable trader, but your account is placed on a market maker system, because you could not afford to open a reasonably big account to start, and so, you started with a small $1000 account for example. Just because you open a small account, the broker thinks that you are also a losing trader who doesn’t know how to trade and will wipe out his account after a while. Therefore, he places your account on a market maker system. However, when you make profit and grow your account consistently, the broker tries to do his best to make you lose (because your profit is his loss), not to allow you to withdraw any profit. They can move your account to their ECN/STP system when they see you are a consistently profitable trader. But they don’t do it because they prefer to make you wipe out your account and leave.

What does it mean to you?

Your first experience of live trading ends to failure. You lose the only money you could afford to open a live account. You either have to wait and save money to become able to open another account, or, you give up and forget about trading for good.

Unfortunately, it seems it is becoming harder and harder to make profit with brokers these days.

So, to answer the first question of the smart and experienced people which is: Do Forex brokers really pay the consistently profitable traders?

I have to say, no. Consistently profitable traders have a hard time to receive the profit they make, if they want to trade with retail Forex brokers. The other bad news is that it is becoming even harder, as retail Forex trading becomes more popular and more people start trading Forex, because brokers become greedier every day.

What does regulation do in this case?

Regulation can be a big help, but unfortunately there are highly regulated brokers who cheat their clients even more. I don’t want to get involved in politics, otherwise I would explain this in more details. It is exactly where economy starts getting mixed with politics!

The other thing is that regulatory organizations cannot track everything. There are always some ways to cheat the traders while nobody can detect anything. Can police be aware of all the crimes and illegal activities? Definitely not. It is the same with regulatory organizations.

Another thing is that everybody knows that over 95% of traders lose, and many of them are used to accuse their brokers for their losses. So in most cases nobody pays any attention to the complaints of a retail trader whose $500 account is wiped out.

The second question says: Are Forex brokers happy with the small commission or markup they make through each transaction? Is this their only source of income?

After the above explanations, I think now you can easily guess the answer:

No, they are not happy with the commission and markups, and so, they try to make more through cheating the clients, if they can.

After the first two questions, we come to a more important question: Do professional Forex traders trade through Forex brokers or they prefer to choose a different way?

Professional currency and stock traders know everything I explained above. They don’t risk the capital that potentially can make thousands or even millions of dollars for them. Therefore, they don’t trade through retail forex brokers. They trade through the highly reputable and well-known banks.

This is true that banks don’t offer any leverage, and so, you have to have a lot of money in your account to become able to trade and make a reasonable amount of profit. But I believe this is an advantage. Most retail traders lose because their accounts leverage allows them to over-trade. When you take several positions with a $1000 account while the leverage is 500:1 (I see that some brokers offer 1000:1 or even 2000:1 leverage nowadays), you wipe out your account within a few minutes when some small economic news move the market for ~50 pips against you.

What Does It Mean To You As A Retail Trader?

I know that you are not happy with the facts I disclosed above. Unfortunately it is becoming harder to make money as a retail trader. It is because of nothing but greed. Everybody is after money. There is nothing wrong with this, but the problem comes when a party tries to make more than what it is eligible for, through illegitimate ways.

But, be aware of the facts I revealed above.

It is great to be a consistently profitable trader. So don’t give up and do your best to pass all the stages to become a consistently profitable demo trader. However, be careful when it is the time to open a live account. If you cannot find a true ECN/STP broker who establishes your account on a true ECN/STP system, don’t risk your money and don’t open a live account. Keep on demo trading and maintaining your trading skill until you can either find a good and reliable broker, or you save enough money to trade through a bank.

Keep in mind that usually you will not have any problem with brokers as long as you are not a consistently profitable trader yet. They come after you and your account when you start making profit. Therefore, you cannot trust most of the positive reviews you see on the web. Many of them are made by novice retail traders who are not “consistently profitable” yet.

You are lucky, because now you know about the facts I disclosed above, and so, you don’t lose your hard-earned money because of the brokers’ greed. Until you become able to have a professional trading and investment account, you can keep on demo trading and improving your trading skills.

Even if the day that you cannot trust even one retail broker, comes, you can still trade and invest through the trusted banks. It will have so many advantages for you:

1. They don’t offer any leverage. So you will not over-trade and you will have to take one good and strong trade setup at a time. Even if you lose, you don’t lose that much and your capital will be more secure. Your account won’t be wiped out, nor will it end to negative balance when too strong and sudden movements occur, simply because there is no leverage.

2. When you trade with the banks, you will have to trade the longer time frames, because scalping and day-trading don’t make sense with the banks. Banks don’t offer platforms like MT4. They make you trade like a professional investor and trader.

3. Banks don’t trade against you. As they are big financial organizations and have so many financial activities, they make their own money and they don’t care that your exchanges make money for you. They will be grateful when you have your account with them, and they don’t do anything to upset you, because they are professional and have to behave properly with their clients. This is what you hardly see with retail brokers.

4. The bigger positions you take, the better offers and prices you will receive from your bank.

Keep in mind that trading with the banks is expensive. You have to forget about the 1 or 0.5 pips spreads when you trade EUR/USD for example. Banks charge a lot more. In spite of this, professional traders and investors trade with the banks. They trade the longer time frames and hold their positions for a longer time. Therefore, they don’t care about the spread.

5. Depositing and withdrawing your money is very easy with the banks.

6. Their support is great and they are always at your service.

7. They offer so many different things like mortgages, credit cards, gifts, points and… that you can never receive from brokers.

8. They educate you and give you a lot of free information. They have professional advisers and consultants that help you have the best trading and investment decisions. They love you to make money with your account and stay with them for a longer time.