Eliminating the Middleman: How to Trade Directly

Eliminating the Middleman: How to Trade Directly Forex Trading for Beginners: What You Should Know forex trading tool dynamic Forex market forex trading

Negosentro | Eliminating the Middleman: How to Trade Directly | No matter what your experience in trading is, chances are pretty high the thought has come to your mind: what if we cut out all the middle people? This immediately causes a host of questions to arise.

  • Would that mean additional profit?
  • How would the reduction in chain length affect what I’m experiencing as a trader?
  • Is it even legal to try and trade directly?
  • Do I need a forex trading account to buy and sell currencies?
  • What exactly do I do to eliminate the middle person?

You’ll find these and more answered here as this article explores the topic of direct trading. Before we can dive into this, however, let’s make sure we understand how brokers work in hope of also getting an idea of why people might want to eliminate them.

Brokers as Middlemen

In case you’ve been wondering who the word “middleman” refers to in the context of trading, it’s the broker. Quite obviously, it’s not typical for people to buy and sell money directly from or to each other these days. What you do instead is you get registered with a broker and rely on its services.

Apart from collecting people who are willing to trade, forex brokers also act as intermediaries between those and so-called liquidity providers. The term refers to banks and other financial organizations. Their primary role in the context of trading is ensuring that there is supply and demand for those who want to buy and sell money.

Of course, brokers want to make a profit as they provide us with what we need. This is the primary reason some traders are looking for no-intermediary schemes. The broker’s margin is usually made up of per-trade fees, spread, extra service fees, conversion fees, and more.

Direct Access Trade: Is It Worth It?

There are services that present themselves as no-broker-involved. What they do is provide you access to all the information you need and leave it up to you to interact with stakeholders. If we are talking specifically about forex trade, it’s also common to call these direct market access, or DMA, services.

DMA means you use the data on currency pairs to place orders and wait for those to be processed. Please note that the most common instrument for such trade is the so-called CFD, which stands for contract for difference. That is, no actual money possessed by you is involved.

The Benefits

Direct access offers traders a number of benefits, in particular, the following:

  • quicker order processing compared to most (but not all) brokers,
  • excellent transparency, and
  • access to extensive data on currency pairs.

Does it mean that you will enjoy a guaranteed boost if you try this approach? Well, no. The key reason is that DMA companies also want money for what they do for you. Apart from that, however, there’s a considerable con that you have to factor in when making the decision.

The (Big) Downside

Whether you are a beginner or someone who has been trading for quite a while and is well aware of the inner workings in this domain, you might be underestimating your broker.

By acting as a middle person, the broker assumes some responsibility for what’s going on between you and the rest of the participants, including the regulatory aspects. This is of course true speaking about trustable providers.

The broker is also interested in supplying you with the most insightful data as a way of preventing churn and ensuring customer satisfaction. That’s why you might notice brokers showing off the trading platforms that they support — that’s because information and the way it’s presented both matters. Whenever you decide that you can do without the intermediary tier, you take on the responsibility. Not every trader is prepared for it.

Real Money: No Need for Anyone in Between

As an alternative to the scheme described above, you can try trading real money, i.e. sums you actually acquired some time ago to sell when the situation is favorable. While this is a valid approach, it’s hardly viable in most cases because:

  • it involves a lot of risky waiting
  • you typically need to trade really big sums to profit
  • it’s not as accessible as trading with a broker.

Cutting Out the Middle Person

As you can see, direct trade is not completely impossible when it comes to forex or other domains of trading. However, cutting out the intermediary link in the chain won’t automatically result in greater profit. This is not to mention the decrease in certainty and security as compared to a trusted broker.

While it would be an exaggeration to say that direct trading is a universally bad idea, it’s not something we would recommend to a beginner. Even an experienced trader seeking to increase their profit and comfort might want to give it up in favor of a well-reputed and efficient broker.

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