| Choosing The Right Forex Broker
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| | good retail forex broker!
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| Introduction When you first start
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| | Sorry to use a gambling analogy here
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| trading the forex market finding a broker
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| | (trading should never be confused with
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| is unlikely to be a major concern; aren't
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| | gambling) but it does explain the problem
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| all brokers the same anyway? Lets face it
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| | quite nicely. All you have to do to apply
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| if you can find a trading strategy that
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| | it to our situation is switch out a few
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| you are comfortable with and become
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| | words: Las Vegas is the interbank market,
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| consistently profitable then that is the
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| | runner becomes retail broker, sports book
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| battle won, right? Unfortunately it isn't
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| | becomes large bank, bets become client
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| that easy and the shame of it is that
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| | trades, running fee becomes spread, big
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| there are too many so-called brokers out
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| | sports events are big news items and the
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| there who want to rip you off.
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| | difference between the odds you get and
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| Where Does This Mentality Come From? The
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| | the odds your client gets is the slippage
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| retail forex industry has been brought up
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| | you hand out.
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| on the fact that FX is worth $2 Trillion
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| | Isn't This Slightly Cynical? Yes the
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| in volume every single day (in reality
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| | analogy used is slightly cynical; it is
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| only a fraction of this comes from
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| | not the case that every broker out there
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| private speculators, the vast majority is
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| | is guilty of these 'bucket shop' tactics
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| generated by large banks and
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| | (rest assured that every brokerage will
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| multinational corporations). This is
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| | deny it however) but it is far too
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| quite a lure especially when we are
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| | common. Even bank traders can experience
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| reminded at how this figure completely
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| | slippage at volatile times but the degree
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| dwarfs the stock market, and we've all
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| | to which it occurs at the retail level is
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| heard how much you can make from stocks.
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| | unacceptable. Furthermore you cannot use
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| Now add the statistic into the mix that
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| | volatility as a defence when you begin to
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| between 90 and 95% (probably closer to
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| | hound profitable traders with constant
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| 99%) of all retail speculators lose money
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| | re-quotes, accusations of illegal
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| and you have a bevy of firms climbing all
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| | scalping (no such thing even exists!) and
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| over themselves to get their hands on
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| | forced account closure. And what about a
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| this cash. Forex is billed as the way to
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| | brokerage going bankrupt without
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| become mega rich, leave your job and live
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| | returning your funds? Is it any wonder
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| the life you've always wanted but if it
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| | that this article is questioning the
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| was that easy everyone would be doing it!
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| | honesty of some retail brokerages?
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| How do Retail Brokers Position
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| | What About Regulation? The retail market
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| Themselves? To answer this question we
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| | is still fairly young and therefore
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| need to briefly explain some market
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| | loosely regulated. However, there are two
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| dynamics. The forex market is completely
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| | organisations that police the sector and
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| decentralised. This means that, unlike
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| | they are beginning to step in and protect
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| centralised exchanges such as the NYSE
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| | the consumer on a more regular basis.
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| and LSE, there is no central location
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| | These organisations are the National
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| where each transaction can be traced and
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| | Futures Association (NFA) and the
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| recorded nor do currencies have
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| | Commodity Futures Trading Commission
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| specialist market makers responsible for
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| | (CFTC). Of the two the CFTC is most
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| providing quotes for the entire market.
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| | heavily involved in the regulation of
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| Instead, the entities that act as market
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| | fraud, manipulation and abusive trade
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| makers for the currency market are the
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| | practices in the retail forex sector. The
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| World's largest banks. These banks carry
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| | CFTC.gov website is an excellent source
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| out transactions between each other on a
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| | of information on customer protection and
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| regular basis, hence the term 'interbank
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| | on-going legal disputes against brokers
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| market'. In order for you to deal
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| | and other entities.
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| directly with these large banks you need
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| | Lets Talk About the Positives It's not
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| to establish credit relationships with
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| | all bad out there; certain firms do offer
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| them which takes a vast amount of money
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| | very attractive and honest services. Let
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| and consequently most people cannot
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| | us summarise some of the attributes you
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| afford to do this. So this is where the
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| | should consider looking for in a broker:
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| retail brokers come in; they connect you
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| | 1. NFA and CFTC registered
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| with the large banks. Because they are
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| | 2. No dealing desk, ECN style brokers
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| representing many clients they have
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| | 3. Variable spreads that reflect the
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| enough equity to establish credit
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| | volatility at interbank level
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| relationships and deal with these banks,
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| | 4. Firms that charge commission rather
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| supposedly on your behalf.
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| | than a flat spread (the thinking here is
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| This Position is Open to Exploitation
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| | the more you trade the more they make so
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| Retail Forex Brokers are the middleman
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| | it is in their interest to see you make
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| between you and the interbank market so
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| | profitable trades and continue to trade
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| every time you place an order to buy
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| | happily with them - less likely to be on
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| EURUSD for example, your broker alters
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| | the other side of your trades)
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| their currency holding positions with
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| | 5. Friendly and efficient customer
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| their large bank partners to reflect
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| | service
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| this. Rightly so your broker charges a
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| | 6. The offer to insure your capital in a
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| fee for this service which usually comes
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| | secure bond (will protect client funds in
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| in the form of spread (the difference
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| | the event of a broker's bankruptcy)
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| between the bid and the ask). The spread
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| | 7. Limit entries (your broker allows you
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| they offer you is slightly larger than
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| | to enter the market with a specified
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| the spread they are offered in the
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| | 'chase factor' of a few pips. If your
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| interbank market so your broker can make
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| | order is not filled within the acceptable
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| a small profit on every trade you make.
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| | 'chase factor' your order is either
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| Everything sounds all well and good so
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| | partially filled or not filled at all -
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| far, agreed?
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| | prevents ridiculous slippage at times of
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| Now let me ask you a question: suppose
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| | high volatility)
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| you work in Las Vegas as a runner placing
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| | 8. A good reputation within the industry
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| bets at sports books for several clients.
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| | (check independent sites for user
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| Now you've been doing this for a while
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| | reviews)
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| and you recognise that some of your
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| | 9. No BS marketing that focuses on the
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| clients are good at picking winners and
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| | multi millions you will make within
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| some are good at picking losers. If you
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| | months of opening your account (these
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| could make a little extra on top of your
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| | firms prey on inexperienced traders and
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| fee for running by doing the opposite of
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| | gamblers who have no chance of being
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| the clients who consistently lose bets
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| | profitable)
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| would you do it? Now suppose that 99% of
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| | 10. Realistic and modest margin/ leverage
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| your clients lose money over a long
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| | (firms that offer leverage over 100:1 are
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| enough period of time so all you have to
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| | encouraging you to trade big and lose you
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| do is bet against them all and you will
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| | account to them quickly - you may wish to
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| make a fortune! Sometimes around the
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| | look out for a broker who offers you a
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| really big sporting events you get so
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| | choice of margin requirements)
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| busy you can't place your clients' bets
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| | Of course not all of these attributes can
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| and your bets quickly enough so you
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| | be classed as 'golden rules'. If
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| figure you'll make sure you get in with
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| | something is perceived as attractive then
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| good odds and then sort out your clients
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| | it is open to exploitation. For example,
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| once you are done, meaning they get
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| | ECN brokers are becoming very popular and
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| slightly or sometimes much worse odds
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| | this has lead to several firms
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| than you. This mindset is greedy and
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| | advertising an ECN service when they
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| unfortunate and you won't have many
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| | don't really have the technology to
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| friends but at least you would make a
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| | provide one.
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