How do brokers pay your leverage? How does it work?

[MickMason]

Originally Posted by socrates

Was that your revelation?

Umm, no, that was one of my replies in response to the question asked by the original poster, which bit of it did you have difficulty understanding?

I did not post a helpful answer in the hope of being flamed by you.

You're right, your answer was not helpful, it was more like stating the patently obvious and less use than a chocolate teapot. I can't imagine why you would hope to be flamed by me or anyone else, wouldn't it have been easier to just post a helpful answer (supposing you know the difference of course).

It's Christmas, peace and goodwill to all men so I'll let you off this time, but don't do it again there's a good chap

I imagine Socrates will be turning in his grave right about now........


Mick

[cornellj]

The market maker,jobber, broker makes his money on the spread he charges the smaller trader to whom he sells smaller parts of deals he has made with larger institutions acting as a retailer of a product he bought wholesale. He covers positions inhouse between buyers and sellers and offsets the difference in the market. The broker is thus the counterparty to my trades.

For this reason they carry huge creditlines with the institutions they deal with. The brokers also leverage their available funds the same way we do with the institutions they deal with. Because they make use of creditlines that can hurt them, they have to cover themselves on all trades. They use a variety of methods to do this, a few that has been mentioned in this thread already.

I do not really care how it is done (if well done) as long as I am given the opportunity to participate.

Socrates and MM I enjoy your posts.

Merry Christmas to all.

[MickMason]

Very succinctly put, much better than I managed!

Merry Xmas to you too, have a great holiday


Mick

[Mainframes]

Okay, I understand that the broker will cover my trade 'in house'. I.e. if I ask to buy EUR/USD, then the broker will sell EUR/USD if there's someone 'in house' to sell it to.

1) Some brokerage firms only have 6000 or so clients. How easy is it to cover the trades 'in house' in order to make the spread? What happens if they can't cover the trade and the trade is too small for a bank to accept, do they then take an overall position themselves (i.e. we trade againsy them)? That is scary because they are the marley maker!

2) Brokers make money off the spread, and if one puts in large order which they cannot cover 'in house', then they must trade with a bank in order to make their net position neutral. From these posts it appears that a trade of 100,000 is too small to be passed through to a bank. Typically when is a trage large enough to be put through to a bank?

Cheers

[TraderABC]

Originally Posted by Mainframes

Okay, I understand that the broker will cover my trade 'in house'. I.e. if I ask to buy EUR/USD, then the broker will sell EUR/USD if there's someone 'in house' to sell it to.

1) Some brokerage firms only have 6000 or so clients. How easy is it to cover the trades 'in house' in order to make the spread? What happens if they can't cover the trade and the trade is too small for a bank to accept, do they then take an overall position themselves (i.e. we trade againsy them)? That is scary because they are the marley maker!

Yep... Considering that ~95% of people lose, brokers aren't afraid to take the ther side.

2) Brokers make money off the spread, and if one puts in large order which they cannot cover 'in house', then they must trade with a bank in order to make their net position neutral. From these posts it appears that a trade of 100,000 is too small to be passed through to a bank. Typically when is a trage large enough to be put through to a bank?
Cheers

It is usually found on brokers website. From what I've read it has to be 1m or above (I've heard as big as 7 mil dollars) I don't know if it is million of dollars leveraged or not. So if you are trading mini, then FORGET that you account goes outside of the brokerage... Even standard account has to be atleast 10lots for it to go through the brokerage (if they so decide)... scary....

not my 2 cents.

[ampris2000]

concerning a brokers take profit being my stop loss.....

a thing i do all the time is trail my stop loss. so in effect it becomes my take profit after a few days. does the broker still profit when my stop loss is hit even though that stop loss has become a "take profit" ?

[TraderABC]

Originally Posted by ampris2000

concerning a brokers take profit being my stop loss.....

a thing i do all the time is trail my stop loss. so in effect it becomes my take profit after a few days. does the broker still profit when my stop loss is hit even though that stop loss has become a "take profit" ?

It all depends on who is selling (if you are long). Your take profit for long maybe your brokers sell order, or some other clients sell order depending on how the position was offset. Now, what if majority of orders are on buy which would cause your broker to go on the other part of the trade... Where do you think the price will go then in order to maintain brokerage operations???

[mrbrint]

hahaha......you guys crack me up