Most Forex traders know that there is no central exchange in Forex, but I don’t think that many understand what this means.
Unlike stocks, options and futures where your trading orders are routed to a central exchange and clearing house this does not exist in Forex.
The majority of Forex trades that are executed never leave your broker’s computer systems. Your trades are either put up against another trader(s), a business partner (market maker) or the broker themselves.
For this reason, I have been gradually changing my stop loss management approach across all of my styles of trading as mentioned in a previous post on Facebook. If you think about it, many traders are simply handing over their playbook to a broker who can sway things in the favor of their business partner or their own counter trades. After all, who’s more valuable, the trader who’s going to be around for a month or two or the long-term relationship with a business partner/market maker?
If you’ve been following me for the past several years, you may have saw me post a screen shot years ago (since deleted), where a broker increased my spread to 100 pips during the rollover from the New York to Sydney/Tokyo session. They came up with a lame excuse for doing this and then during another instance increased my spread to 150 pips.
Think about how slight or major adjustments to your spread can cause you to get stopped out or miss your take profit level. I’ve had many instances of this occur over the years and it adds up to a nice profit for your broker and their business partners.
A game changer for me is when I started setting audible alerts on my trading platform and cell phone at price levels prior to my take profit and stop loss prices. Once the alert triggers I start monitoring my trades more frequently, which can result in either an early exit prior to my profit target or preserving my capital during a stop loss run or price spike.
I was once a naive trader, but the more that I learned about the industry, I started to realize that the inexperienced trader is prey in the midst of a hungry pack of wolves.
Some food for thought and more on this topic in a future video.