eu-jin’s posterous

I met someone recently that told me that no one should ever use the
retail brokerages out there to trade foreign exchange, and he listed a
number of reasons that sounded convincing to me. The financial times
blog has just posted about the retail foreign exchange market using
the IPO prospectus of a retail forex brokerage with the juicy tidbits
such as:

1) The majority of our revenue is derived from our activities as a
market-maker to our retail customers, where we act as the counterparty
to our customers’ trades.

2) Our customer base is primarily comprised of individual retail
customers who generally trade in the forex market with us for short
periods

3) As a market-maker, we take an equal and opposite position to our
customers when executing a trade. We believe it is neither
economically optimal nor necessary from a risk perspective to hedge
all of our customers’ trades on a one-to-one basis

The post also goes on to explain why these brokerages allow such
insanely high leverage ratios (basically to make sure their customers
blow past their stops, guaranteeing the brokerage a profit since they
don't hedge the customer trades).

http://ftalphaville.ft.com/blog/2009/11/02/80866/the-100bn-fx-hustle/