In the last ten years the forex market has mushroomed into an industry that now dominates financial online trading, with the promise of quick profits, the ability to trade both sides of the market, a limited number of instruments to trade, and leveraged accounts which can be opened in minutes, allowing the novice fx trader to be trading in forex almost instantly, with virtually no capital. As the markets expand and develop, so do the number of companies entering the market, and just like sharks, are drawn by the scent of blood as the number of willing victims increases daily, lured by absurd leverage and small capital requirements. Unfortunately this high failure rate amongst new forex traders has two significant effects. First, the profits which the dealers and brokers are able to make are almost incalculable, and secondly, with such a high turnover in accounts, the brokers are continually looking for new clients, to replace those that have fallen by the wayside.

In addition, the forex market is of course unregulated, with no central exchange, and as a result most traders have no idea who they are trading against as a result, and indeed most have no idea how the forex rates are derived or delivered to the trading screen. Finally, with  no central exchange to act as arbiter, the forex market is open to a wide variety of abuses, market manipulation and malpractice, by all concerned. At the bottom of the pile sits the novice forex trader with their free online forex trading software, wondering why on earth they are finding it so hard to make money, and grateful that they have all this free software and a free online trading account to help them. If you are reading this and trading with a broker where everything is provided free, then take a few minutes to read on, as I try to explain some of the dangers of trading using such ‘free’ trading tools and platforms.

The first question we need to ask ourselves is, why our online forex trading software is free ? Is our broker giving us this because he or she is kind, or perhaps they don’t want us to spend our hard earned money on software and charts. Maybe they want to make sure we keep as much of our money as possible to help us become successful forex traders? The answer to all these questions is, of course NO, and the reasons are much more mundane, and certainly not for our benefit. First, all brokerage companies are desperate to replace the clients they lose every day, and replace them with fresh money. If they don’t, then they go out of business, pure and simple. As a result they use their forex demo account, free charting software, and free trading platforms as a shop window, first to attract you in, and then to convert you to a client  quickly, so that you become yet another casualty, adding further to the brokers profits.

The second reason is much more sinister, and underpins this desire to have you trading using the free forex trading software supplied by the broker. In order to explain this in more detail, I need to outline several inter-related issues, and in particular how the forex prices you see on your trading screen are delivered, who are the various parties involved in the pricing market, and the type of broker you are using for your online trading. So let me explain how the forex markets work, the types of brokers you will find, and why they want you to use their free software for online trading.