at least they're honest…

If you haven’t read FT Alphaville‘s deconstruction of the Forex trading business yet, it simply cannot be missed.  Eagle-eyed currency trader (and TRB pal) Kevin Hughes shot this over to me and I almost couldn’t believe some of the disclosures.  Note, I said almost couldn’t believe- I didn’t exactly roll into town on the back of a turnip truck.

I’ll give you a taste and then send you over.  Suffice it to say, your currency broker is not only NOT your friend, he is actually your adversary…

Go to any of these sites — FXCM.com, Global Futures & Forex, Oanda.com, etc — and you will get the distinct impression that you are dealing with a warm-hearted, professional broker, where your interests are paramount.

But in many cases the exact opposite is the case. Note this line from the Gain prospectus:

“The majority of our revenue is derived from our activities as a market-maker to our retail customers, where we act as the counterparty to our customers’ trades.”

And there’s much more.

There’s nothing inherently wrong with market-making but it seems as though the FX platforms make nothing until their customers lose.  This is a Vegas relationship without the lodging or dining or Celine.  There appears to be nothing “agency” happening here, only “principal” trading against the rook (which would be you).  I don’t believe that many amateur players who are plunking down cash truly understand this.

The jaded among us and professional currency traders like Kevin have known about this business model for some time.  I’m surprised that these companies would risk going public in light of having to make disclosures like these.

Source:

The $100 Billion FX Hustle (FT Alphaville)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. lace wig online commented on Sep 25

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  2. 사설토토 commented on Oct 19

    … [Trackback]

    […] Here you will find 85382 additional Information to that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  3. robotic testing commented on Nov 12

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  4. DevOps Consulting Services commented on Nov 18

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  5. tangerine canada login commented on Nov 26

    … [Trackback]

    […] Find More Information here on that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  6. CI/CD Services commented on Dec 20

    … [Trackback]

    […] Find More Info here to that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]

  7. Regression Testing commented on Jan 16

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2010/11/16/at-least-theyre-honest/ […]