How Forex Brokers Make MORE Money When You LOSE! (OTC Gain)

Yes that's right... Forex Brokers do make more money when you lose, and in this article you'll learn exactly how.

The main topics we will cover are:

• What Over-The-Counter (OTC) gain is

• How brokers use it to profit!

• Why brokers want you to lose!

• How to win and beat the brokers!

What does OTC gain mean?

Over-the-counter (OTC) refers to the process of how securities are traded via a broker-dealer network as opposed to on a centralized exchange. Over-the-counter trading can involve equities, debt instruments, and derivatives, which are financial contracts that derive their value from an underlying asset such as a commodity, or in this case a currency. - Investopedia

OTC gain is where brokers will take the opposite sides of all trades that retail clients place, this is to hedge (protect) their losses against the underlying asset of your trade, this means that if your trade starts to win they do not make a loss. However, this also means that if your trade starts to lose, they profit!

How does OTC gain actually work?

Whenever you open a position with your broker, they take the opposite side of that trade, meaning that if you buy a currency, they will sell the currency at the same time, so if your profit where to increase by 2% the broker would be at a loss of 2%. However, the brokers will hedge their position meaning that they don't actually lose anything!

This Graphic explains how OTC gain is looked at from the Brokers perspective...

First you have the losing traders, brokers call these traders "book A traders". They will enter a trade based on a chart patterns or technical indicator provided too them by the broker or any other day trader.

The Broker will then open an OTC position at the same time the trader opens their position with the broker, this position will effectively take the opposite side of the trade.

They do this to protect their losses if you win however the nice little side effect is that they make money when you lose!

Second come the winning traders or "book B traders" these traders will most likely use fundamental analysis to determine their bias and enter the trade using technical analysis as a timing indicator.

The broker will open an OTC position on the opposite side of their trade and this will protect them when the trade wins, the broker will still make money using spread, commission and financing turn but they will not make money from OTC

The Hidden Agenda behind all forex brokers!

Your broker wants you to open as many trades as you can using large amounts of leverage and on very popular and mainstream currency pairs such as EUR/USD and GBP/USD.

This maximises their earnings from your trade as you are likely to lose your trade.

The leverage you used will multiply their OTC gain from taking the opposite side of your trade.

And because you were trading on a very popular currency their spread price is much wider than normal.

As you can see all these factors equate in the Broker making a lot of money from your trades, this is why they push their customers to trade as much as possible, the more you trade the more money they make...

Also, the more you lose the more they make!

Why do brokers use OTC gain?

The U.S. Securities and Exchange Commission (SEC) points out that "day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status."

This is called the 90/90/90 rule…

This incorporates the fact that 90% of new Traders lose 90% of their capital in 90 days!

OTC gain helps brokers profit off of all these losing traders, and their profits can be very substantial.

We call this the fool proof business model ironically as it takes advantage of new trader’s lack of knowledge.

In the example above we see why they do this...

If this many customers where losing and you made money off of all these losing traders then you would continue to market your platform aggressively to beginners.

You will need to get as many of them as you can to sign up as the amount of people closing their accounts due to their losses will be high. You need to be bring in a constant flow of newbie traders.

You wouldn’t stop there though…

To gain the maximum amount of revenue you would want to make sure that your clients are trading with high leverage, and also that you release material advertising popular currency pairs to increase the amount of liquidity on these pairs to widen the spreads.

To learn more about this click here

How do brokers make money from your losses?

As you can see in the highlighted box above there are a multitude of ways that brokers make their money off of the trades that you make. The only difference between the Losers and the winners (Book A and Book B) is the OTC gain.

This shows you that Brokers make MORE money when you lose, so it might be a good idea not to purchase their own brand indicators and analysis tools until you fully understand the costs of trading.

Stay tuned to this blog as we will be going in depth on each of the ways that brokers make their money highlighted in that box!

How to beat the brokers!

Being able to employ winning strategies is hard though, along with proper risk management which is always key, this can be complicated, lucky for you logikfx has the answers to all your questions right here

How to become a Forex “Winner”!

There are many different methods of technical analysis out there, some of the tools and indicators are even sold by the brokers themselves!

To get real success the use of fundamental analysis is absolutely key, if you want to move from book A to book B you must learn how to use fundamental analysis.

Fundamental analysis is the process of looking at the macro-economic factors to determine the relative strength/weakness of the currencies that you are trying to trade.

Instead of staring at price on a chart you must look deeper into the strength of each currency involved in the pair to figure out which one is stronger and which one is weaker.

To read further into why Fundamental analysis the only method you should be using to profit in the forex industry click here

Conclusion

Brokers make their money a variety of different ways, perhaps their most profitable method is OTC gain, they exploit traders who know very little about the assets they are trading, their combination of aggressive marketing and mis-information allows them to make money of these newbie traders which makes it no secret why 90% of traders lose 90% of their capital in 90 days.

There is a way around this however, through the use of proper and full fundamental analysis and emulating the risk management strategies of professionals you can become one of the 10%...

Sound good?

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