If you have been around the forex forums that exist on the web at present you would have come across people claiming that their forex broker manipulates the market. Of course the manipulation is done to the detriment of the person who lost money. So, let’s explore this “manipulation” concept a bit further.

How Does A Broker Quote Prices?

A broker quotes prices according to three sources:

1. Their banks;

2. Their customers; and/or

3. Themselves.

We will explore each in a little more detail.

Bank Quotes

There are two large institutional groups that make up the currency market: the banks and the market makers (brokers). The banks are the institutions that make up the interbank market (hence the term “interbank”) and the market makers (brokers) offset their positions by trading with the banks.

Depending upon the number of banks that a market maker is listed with, a market maker can choose any price from the range of quotes they receive from their banks. Obviously the market maker will quote you the price that will ensure they receive the most from the transaction. This only makes common business sense - if someone offered you $10 or $5 which would you take? There’s no question, anyone would take the $10.
To help the market maker make the most out of the transaction they employ sophisticated computer programs to generate the price that their retail clients see. This program will take all quotes received from their banks and will provide you with a price according to how they can best make money offsetting your position into the interbank market.

Now that we understand how brokers receive their quotes from the banks, let us move to the next point… quoting a market due to clientele.

The Clientele

Many people complain that the prices seen on one particular brokers’ platform is different to the prices seen on another platform - sometimes by as much as 50-60 pips! One question that I generally ask in return is: could a large client of the market maker be off-loading a position? Just because a quote is different does not automatically mean that the broker is manipulating price - there can be two sides to this story - and don’t be too quick to jump to negative conclusions, just remember:
No market maker no play