At first, it is necessary to remember some important information about the foreign exchange spot market before we begin to study in more detail the change of quotes that the forex kitchen uses.
Therefore, the foreign exchange spot market can be described as an interbank market. It works on the basis that banks trade with each other. Therefore, the price is formed based on the supply and demand of the largest and most liquid banks in relation to any particular currency. This practice is not regulated and is not available on a formal exchange such as a stock exchange. Hence another definition of the foreign exchange spot market: over-the-counter.
A continuous stream of quotes gives an idea of interbank prices. For example, at Reuters or Bloomberg terminals. These prices are used by major banks, hedge funds, corporations, and traders to trade.
As a general rule, forex cooking implies that a broker has an account in one or several banks at the same time. Having access to bid and ask prices, and having the opportunity to negotiate with banks, they, working with retail clients, offer them a slightly higher price than the bank. Brokers change quotes while making a profit.
The activity of a broker, like that of a trader, is aimed at making a profit. Therefore, many of them resort to adjusting their prices, changing quotes to gain a greater advantage over their customers.
Forex Kitchen: Broker Stocks
Let us consider in detail the actions of the broker, which involves the kitchen of forex. The banks with which the agreement is made provide him with a series of prices, after which he sets his price based on their combined image. Having foreseen some difference, the broker offers a price to his clients. For example, having received a price of 52-53 for 41, trading in the euro, respectively, it turns out that the bank will sell the euro to the broker at a price of $1.4153, and will buy it at $1.4152. In making an offer to a retail client, the broker, taking into account his own interests, offers, for example, a sale price of $1.4154, a purchase price of $1.4151, establishing an equal margin to three points.As a general rule, most brokers offer this fixed spread.
Another aspect that brokers take into account is the evaluation of the flow of incoming orders. Thus, the forex kitchen allows you to determine whether clients are more or less interested in buying than selling. Due to some distortion of the incoming data of the total flow of orders from retail clients, the broker slightly increases the premium for all clients. Ultimately, the price will be overdone for selling to 1.4155 and buying to 1.4152. The buyer will pay more and, consequently, the broker will receive a higher profit. This Forex broker uses this scam, relying on the higher growth of the market.
If there is an equal number of sellers and buyers from 100 to 100, the broker earns one point on each transaction and receives a total of 200 points. When there are 150 buyers and 50 sellers, the price increase for buyers will be two points, but for sellers it will remain unchanged. As a result, the profit received by the broker is 300 points.
Ways to profit from a change in quotes in the forex kitchen
In order not to fall for such a Forex scam and determine if the quote is too high from the broker, you need to compare your quotes with the Reuters or Bloomberg terminal. As an option, cooperate with a broker that provides “direct processing” or have two accounts at once: with a broker with a trading terminal and with a broker with “direct processing”. Providing “direct processing”, the broker does not have a trading terminal, but adds a commission instead of spread manipulation.
Such a move will allow you to track the broker’s actions in terms of overstating quotes for buys or understating sells compared to interbank quotes.
Such a forex kitchen, that is, the change in quotes, cannot be unambiguously considered a negative phenomenon for a trader. If your broker’s actions are not conscientious enough, he can use his methods to his advantage. If he was able to detect a constant shift in broker quotes to one side or the other, he can conclude that the majority of retail client orders are moving in a certain direction, creating an imbalance in the overall flow of orders. . Often misguided, retail traders provide an opportunity to trade against the current bias. That is, sell with a buying bias and buy with a selling bias.Going in the opposite direction of most traders, if they are wrong, you will be right.
Another advantage that such a forex kitchen will bring to sellers is that when the broker’s quotes move against the majority of the traders, the market can be entered at a better price than in the absence of a quote change.
The broker may also incur losses when the market moves towards the buyers, but he, unlike the traders, knows this. If you have an account with a broker with a trading terminal, he can successfully trade in the opposite direction by identifying a bias in his quotes.
Forex Kitchen Slide System
In conclusion, keep in mind that the forex kitchen is distinguished by moments such as price changes and slippage. In case of slippage, it is worth talking about fast markets and little liquidity. When the market moves quickly, there is a possibility that you will not have time to execute the order at the price of the quotes, because when the market reaches the order, the price has already moved from the mark you defined, at which you intended to execute. the deal To avoid the slippage effect, you can apply a limit order or set your own order within the spread. However, the downside of this method can be the inability to open a position when the market moves away from your order.Therefore, depending on personal preferences, you can pay for slippage and have the opportunity to open a new position.
So, having studied the Forex scam in detail, of course, it is preferable to personally analyze the picture of the change in quotes. Research the methodology of various brokers to get a clear picture of their overall fee and commission structure. In any case, there is no free service, since the activity of intermediaries is also a business that implies making a profit. It will be ideal if you manage to find a broker with a transparent scheme for profit, because you still have to pay a commission one way or another. Therefore, when a broker claims that he does not include a commission, knowing in detail how the forex kitchen is organized, a logical question arises: how does he make a profit?Ask the broker himself about this and also study his documentation. It will be useful to look at specialized forums and reviews. Usually,