How brokers earn money and provide leverage?

How brokers earn money and provide leverage?

How brokers earn money and provide leverage

How the broker earn money?

  1. Brocker Revenue =(Spread+commission)+(financing+OTC gain)
  2. Brocker Spread and commissions increases when a client trade regularly and take bigger size trade.
  3. OTC is called over the counter: made by taking the opposite position of retail traders
  4. Financing: Money made from the % difference borrowing from a creditor like a bank or investors to finance leveraged trading  and % charged to the client
  5. Therefore the broker always wants you to trade as big as possible to earn the commission and take the opposite trade against you.
  6. Investment bank provides credit line at low cost to the broker 
  7. The broker provides leverage to the retail traders at a higher cost than an investment bank
  8. The difference is  the profit for an investment bank
  9. The risk-taker is an investment bank for leverage, not the broker
  10. When you deposit money in your trading account 
  11. You are sponsoring your broker to borrow more money
  12. Therefore by depositing money in your trading account you are not only sponsoring the financial turn, but you are also sponsoring the broker to have the option to use the same credentials to make money by taking the other side of your trades if you lose.

Why Brocker provide 40x leverage on your trading account?

  1. What it takes to open a trading account?
  2. ID card-address proof-Bank account
  3. When you add 1,00,000 in your trading account why broker allows you to trade with 40x money? Can banks lend you the same amount of money if you take a loan?
  4. The bank never provides you the 40x money but the broker does.
  5. Because the broker has 90% winning trades. They promote you to use leverage and take big trade as much as possible.

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