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April 28, 2016

Question:Why XTrade restricts some trading methods for Forex and CFDs trading?

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Answer:

XTrade offers mainly CFD instruments to its traders and it also promote the brand as a CFD broker.

The broker offers the largest number of CFD products through its trading platform.

CFD is OTC

CFD stands for contract for difference, and its biggest merit is you can also generate profits from falling prices.

This “generating profits from falling prices” is possible because it is an OTC derivatives.

OTC stands for over the counter and this means that you trade with the broker(companies) but not with the real exchange market created by liquidity providers.

OTC derivatives means, it is a created financial product by the broker and traded with the broker.

CFDs(OTC derivatives) come with several trading restrictions to protect the profit of the brokers.

The restrictions are almost same for all brokers in the world, but not just XTrade.

Prohibited trading methods

For some brokers with STP environment, they do not restrict any trading method because traders’ profits are brokers’ profits.

But in the case of OTC broker, it is otherwise.

As XTrade is a 100% complete OTC broker, there is a conflict of interest between traders and XTrade.

Thus XTrade demands fair tradings with its traders and the broker does not allow some certain trading methods to give unauthorized advantages to traders.

The prohibited trading methods are as follows:

  • Snipping
  • Scalping
  • Pip-hunting
  • Hedging
  • Placing “buy stop” or “sell stop” Orders prior to the release of financial data
  • Arbitrage
  • Manipulations or a combination of faster/slower feeds

All trading conditions are specifically specified in the terms and conditions provided by XTrade.

Execution Venue

XTrade also mentions that the sole Execution Venue will be XTrade and the transactions entered in Financial Instruments with XTrade are not undertaken on a recognized exchange.

This means that your orders will not be sent to any exchange market, but to XTrade only.

So if you place a buy order, XTrade is placing a sell order at the same time.

Meaning that if you make a profit, XTrade makes a loss and vise versa.

Conflict of Interest

You may want to understand that there is a conflict of interest between brokers and traders if the broker is a OTC model.

Only STP brokers who provides DMA to its traders, will have no conflict of interest.

But thing is that there is a few STP brokers in the world(like Traders Trust nand GBE brokers) and many brokers promoting as STP models are not really STP.

This means that this kind of conflict of interest is common thing for many brokers.

Also all CFD products are OTC derivatives, and every OTC derivative will have conflict of interest with brokers.

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