Resolved Question
If we all earn pips and constantly beat the house, how does the house stay in business?
If we all earn pips and constantly beat the house, how does the house stay in business?
I know this isn't really a good analogy but I'm just wondering where this pip money I'm making is coming from?
Is someone loosing money because I'm making it or not really?
about 1 year ago
Best Answer - Chosen by Voters
There are some brokers that take the opposite side of your trade, while there are some that match your trade with someone else. And although 80%-90% of market participants are speculators, there are still some who engage in the spot fx market to hedge or to do business. For instance, an importer in the us wishes to buy some ninja stars in japan would first need to exchange his us dollar for the Japanese yen. In effect, he engages in the foreign exchange market. Strictly speaking, every winning trade doesn't necessarily need to be accompanied by a losing one.
about 1 year ago
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Answers (2)
By "house", are you referring to brokers? Brokers earn from all this pip-making activities of ours through the spread, which is the difference between the bid and ask price. Of course, when you enter a trade, the broker has to match your position with an opposite one. For instance, if you shorted the eurusd pair, the broker will match this with a long eurusd trade. If you win your trade, the person who went long eurusd loses, and that's where you get your profits from.
about 1 year ago
Also, you said "Of course, when you enter a trade, the broker has to match your position with an opposite one. For instance, if you shorted the eurusd pair, the broker will match this with a long eurusd trade. If you win your trade, the person who went long eurusd loses, and that's where you get your profits from."
Why do brokers do this? Thanks again
about 1 year ago
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To add to forex ninja's answer, those brokers who simply match buyers and sellers can make money off the spread. When trading with a broker, there are always two prices, the bid and the offer. The difference between the two is called the spread. When you buy a pair, you buy at the offer rate but when you close out your position (or sell), you have to pay the bid price, which is lower. Now remember, when you close out your position, your trade will be matched with an order of another trader, who is buying at a higher price than what you are selling. Where does the difference go? That's right - to the broker. Also, take note that other brokers charge transaction fees per trade, or on interest rate differential. These fees add up and add to the brokers profits.
about 1 year ago
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jabba1
Thanks for your answer. By "house" I was really refering to the market as a whole...? I should have made that clear in my question.
about 1 year ago
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