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  1. #1
    Master Member SeasaltMcFish's Avatar

    How do brokers make their money? !!!

    I would find it very interesting to know how brokers make their money (and I mean trusted brokers, not scammers). Are they trading 'against' us, are they just getting some % of every trade (so they don't care if I win or lose) or are they trading against bad traders, but with good traders?

    I think that's very important to know when choosing a broker.

    Maybe there can be some remark about that in every broker review?

  2. #2
    Specialist Member marc's Avatar
    Quote Originally Posted by SeasaltMcFish View Post
    I would find it very interesting to know how brokers make their money (and I mean trusted brokers, not scammers). Are they trading 'against' us, are they just getting some % of every trade (so they don't care if I win or lose) or are they trading against bad traders, but with good traders?

    I think that's very important to know when choosing a broker.

    Maybe there can be some remark about that in every broker review?
    Yes, that would be very interesting ...

    Actually I think they trade against us AND earn some spread ... and somewhere I have read that they are hedging against their traders ... and for sure, they tweak the availability of trades dynamically

  3. #3
    Legendry Member willyw's Avatar
    I have work in a brokerage firm before. Expenses in a brokerage firm are very high, from utilities bills to salary. Just by earning the commission and spread sometimes could not cover their overheads. That is why brokers always encourage traders to scalp. In the brokers views scalpers die very fast. For brokers who trades against us, they will trade against scalpers with small margin.

  4. #4
    Active Member pipshunter's Avatar
    The situation is that trusted brokers also trade against their clients.

    Actually it couldn’t be any other way. Better explained – they match put and call options from different clients. For example, one client is buying call and another one is buying put on the same instrument. The broker earns the spread which is fairly big – something like 10%, because one of these two clients is wining 80% and the other is losing (10% return of the funds) so the broker gets the other 10%. That’s it! Simple and profitable.

    If there is a client with a huge bet, let’s say $10k and there is no client with the opposite position, the broker may or may not hedge this position with liquidity provider. If he decides to hedge, he will receive only tiny percentage on that trade, if he doesn’t hedge there are two possibilities: to lose 80% or to win 90% of the bet. If the broker statistic shows that most of the clients lose money, and that is true for sure, the broker could leave options not hedged and over time he will profit huge amounts. This is actually not a problem for us. We are interested only to in receiving our profits and in withdrawing them. If the broker is trustworthy he has the ability to cover fairly all wins of his clients, and yet to profit from the whole client base. If he is not trustworthy he will do everything possible to prevent profitable clients to withdraw their funds. This is the biggest risk for us and we have to avoid suspicious brokers!
    Last edited by pipshunter; 11-28-2013 at 09:38 AM.

  5. #5
    Master Member Bogdan G's Avatar
    Quote Originally Posted by SeasaltMcFish View Post

    Maybe there can be some remark about that in every broker review?
    Well, that would be very complicated because we cant just go ask them and expect an honest answer. On top of that, I dont know how to determine for sure where my trade is transmitted by the broker or if it goes anywhere. Anyway, I believe most of them are trading against traders, taking teh opposite position.

  6. #6
    Specialist Member pinoyoptions's Avatar
    I think because 95% or 98% of traders are losers, so broker end up with bunch of cash flow every minute. If this business are not profitable we may never see any broker appearing every single day.

  7. #7
    Master Member SeasaltMcFish's Avatar
    Thanks about the replies

    I guess they indeed 'trade against us' and it shouldn't be a problem if there's enough players with the opposite trades. However, I think especially small brokers could be tempted to keep winning traders out of their way, since they only cost money. Or do even winning traders make them money?

    Anyhow, with this thought in mind, it should be better to trade with a bigger broker, since they will always have many opposite trades available to pay you out. Or am I thinking wrong here?

    Are the recommended brokers known by traders here to be trusted in the withdrawals? I mean: how are they tested on this?
    Last edited by SeasaltMcFish; 11-28-2013 at 08:40 AM.

  8. #8
    Veteran Member Ammeo's Avatar
    They make their money from commisions..i dont think it has anything to do with traders losing or wining trades....Broker's commision is going to be the same irrespective of what a trader's trade outcome is....
    P.S::My statement was regardig licensed and regulated brokers with proper reputation in the market..

  9. #9
    Veteran Member hchandra's Avatar
    After reading reminiscence of stock operator I have in my mind several idea how brokers make profit:
    1. Basically - they match order internally between trader A and B in their brokerage and gain instant profit from spread
    2. Basically - they match order externally too between trader A,B,C inside the brokerage to market pool to gain instant profit from spread
    3. Advance - they have statistic who win and who lost
    *for trader who lost, they take opposite position to them
    *for trader who have good win percentage in profit, they copycat the trades
    4. They partnered with famous trader selling their course and shared the profit, benefit from the course is more clients, more volume

    Point 3 can happen using multiple of brokers, they exchange orders which become really hard to determine.

  10. #10
    Legendry Member willyw's Avatar
    Quote Originally Posted by hchandra View Post
    After reading reminiscence of stock operator I have in my mind several idea how brokers make profit:
    1. Basically - they match order internally between trader A and B in their brokerage and gain instant profit from spread
    2. Basically - they match order externally too between trader A,B,C inside the brokerage to market pool to gain instant profit from spread
    3. Advance - they have statistic who win and who lost
    *for trader who lost, they take opposite position to them
    *for trader who have good win percentage in profit, they copycat the trades
    4. They partnered with famous trader selling their course and shared the profit, benefit from the course is more clients, more volume

    Point 3 can happen using multiple of brokers, they exchange orders which become really hard to determine.
    hchandra, you are right.

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