In what ways are forex brokers different than bitcoin exchanges?

Question

I am familiar, very familiar with bitcoin exchanges. I played in several places.

Yobit, binance, bitrex, hitbtc and so many others.

Then I tried to use forex broker.

I wonder in what ways are they are different?

If I send $1000k to a forex broker will the broker save my money in the bank and then let me play?

The only money that can be "played" in bitcoin exchange is the money that are deposited by the player. What about forex broker?

In most bitcoin exchanges, trading on margin is impossible. The exception is polo and bitfinex and they have their own special lending app for that.

What about forex broker?

In bitfinex and polo, players can make a good rate lending money to margin trader. I don't see that in forex broker. Why?

For example, if I want to use bitcoin in bitcoin exchanges I will have to deposit bitcoins.

In bitcoin exchanges the exchange hold the actual bitcoins, usually in some cold wallet.

What about in forex broker?

If I buy or sell bitcoin in bitcoin exchanges, I am buying it from other player. I don't buy it from brokers. Is this the same way in forex?

The spread in bitcoin exchanges are often high. Sometimes we can make small money buying at bid price and selling at ask price. The catch is we need to find market taker. What about in forex?

Do forex brokers really have the money in their platform? If people buy USD EUR in one forex broker, are we buying it from other players or from the broker?

Finally are prices in all forex brokers the same? In bitcoin exchange, prices are not always the same. They are usually quite close. If price of ETH/BTC is high in one exchange, one can buy ETH from another exchange and send it to that unusual exchange and keep arbitrage profit.

What about in forex broker? Say price of GDP/USD is 10% higher in robo forex than in instaforex, what are they gonna do? Buy GDP USD in one and short in another?

Answer 1

With the brokers that advertise on the internet, you are gambling against the broker. Nobody else is involved.

You send them your money, and they will let you carry out trades. They will allow you to leverage your money. As an example, you could send them $1000, but they might let you buy $10000 of foreign currency. When you trade back again, they will reclaim their $9000 and give you back what's left.

Every trade you do will attract a commission payment. Unless your trades are so good that you beat that commission fee, you will lose money on every trade.

There may be a clause in the small print that says they don't even have to do the currency trade. They can just pretend they did. They know that they will win most of the time, so it makes little odds to them, and they are not paying a commission to somebody else.

Forget any idea of a 10% difference in exchange rates. The big banks are swapping currencies all the time, and the exchange rates are known down to the last cent.

Be aware that most of the people who dabble in forex trading using the online platforms lose money. I have seen a flood of adverts on YouTube recently for one of them. Buried in the small print on the screen is a warning that 74% of their customers lose money.

Answer 2

The question might be simply asking "what is retail forex like ?" even though asking from the point-of-view of a Bitcoin trader. So I will make previous comments into an answer:

Retail forex brokers can layoff large currency positions to commercial banks and then keep a balanced book. So the retail forex broker is not expected to be an adversarial counterparty but just a facilitating counterparty.

And the retail forex market very much matches the result of the futures exchanges except that currency futures price to include contango or backwardation instead of forex rollover interest. The currency market is the largest financial market but the average investor can't get leveraged spot currency positions directly from a commercial bank.

The currency market as the largest financial market can't be manipulated by a single analyst or investment bank. A group of investment banks or hedge funds could support a trend.

Now leverage is a funny subject. If someone has $4000 in a forex account and takes a $100000 position then they are highly leveraged if that $4000 is all they have. But if they also have $100000 in Treasury Bills in another account then they are not really leveraged at all.