Ha! Are you kidding me? You should read some of my posts over in the economics and political forums. Everybody loves to gang up on me over there.Quote from Eric215: First, I would like to say that I hope it doesn't feel like I'm picking on you, because I am certainly not. I have respect for you and everyone one on these forums (although with some people it's tough). Because I have a lot of experience and, it seems, I am one of the few very profitable traders that frequents these boards, I make posts where I have something to add from my experience and knowledge. So, with that said, my earlier statement on how an FX dealer makes money off of the spread, is how it works (I should note that this is how it works if the dealer passes off your trade, if it doesn't, obviously there is another strategy being implemented by the dealer). I should also state that I know this not just from my trading experience but also from interviewing with an actual Fx dealer a few years ago. My Usd/Cad 2 pip difference was just an example to show the general mechanics. The real difference varies from pair to pair, based on many factors including, liquidity, competition, and possibly volatility and expected volatility, etc. The Eur/Jpy that you used as an example is one of the most liquid pairs around so it is very realistic for the best inter-bank rate to be .5 pips or less, sometimes even zero (Yes, zero pip spreads does happen from time to time in extremely liquid and competitive pairs). So, even the small spread that you quoted is enough to make a profit on that pair. This spread profit model, and its relative low risk ease of use, is why there were so many dealers popping up for a while there. Then of course the firm capital limits were raised and this in turn made entry more difficult. I, and a fellow investor of mine, were in talks to start one until they raised the limits. These conclusions should also be some what evident from the fact that you don't see nearly as many stock or futures market makers popping up because those require more skill and capital. The stock and futures guys may also have tighter, liquid, spreads to pass their trades off to (especially in the mini market, YG vs ZG for example) but it probably is much less consistent and likely, so they are required to do what you are stating in actually making money off of the full spread by immediately, or through an inventory method, matching customer orders. Of course those MM's have more risk then the FX dealers. I hope this clears it up, if not please ask away.
I see what youâre saying. I guess it doesnât really matter too much just as long as the broker offers decent spreads and doesnât screw you with other things. Please feel free to explain any other things. If youâre a successful trader, I want to learn all I can from you. Thanks