Let us start with a completely different scenario. All cars do the same thing; they provide a sit-down environment, they allow you to be on the road and take you from A to B with the assistance of your effort to drive it. The same applies to Forex brokers. They all do exactly the same thing. They allow you to get involved in a global currency trading environment where you can get in and out of the market whenever you want, depending on strategies you use. However, are they all the same? They should be but they are not.
Forex brokers are part of one of the most competitive industries in the world. The demand for them is huge because it reflects the chances they provide for us to become financially successful. So, it is within their interest to sign us up as a customer. This is why they compete heavily. From tightening the spread to charging no commission, Forex brokers will do pretty much anything to get us to sign-up. They even claim that we can make hundreds of pips per day if we use their trading platform.
From a customer’s point of view, provision of the same and fair playing field should be the norm, no matter which Forex broker we chose to work with. The playing field we refer to is the field where market conditions that are exactly the same all around the world so when the price goes up, it goes up by the same amount on every Forex broker’s platform. In this sense, every Forex broker should be the same.
If the notion of a fair playing field was adopted, the competitive nature of this market would understandably make all traders aware that Forex brokers have to compete on the cost of trading. That is, it would be understandable to widen or tighten the spread from the global price perspective and add or decrease commission costs depending on how competitive the Forex broker wishes to be. This is fair. The same applies to buying the same car from a different dealership. The car is exactly the same but the add-ons such as lower re-payments or one year’s free insurance will sway certain customer towards the better deal.
In reality, this is not where some Forex brokers stop. Due to fact that increasing customer numbers usually means lowering the cost, some brokers chose to protect themselves against big losses. To do this they control the market. Instead of placing customer orders into the Interbank market where the playing field is fair and then add their costs on top, some orders are automatically dumped into a virtual copy of the Interbank market. This is their own version where they can do anything they like. If they want you to lose, they will make prices spike or drop in a direction opposite to your trade. Even thought his happens only for a second or so, you will be stopped out and the broker will profit from this.
To conclude, not all Forex brokers are the same and not all of them provide a fair playing field for everyone. The reason why they can get away with it is because regulation is not tight enough at this stage, but this is getting better as every year goes by.