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I'm not very well read in the area of high finance but I'm curious how forex brokerages are able to provide the backing for leverage that they can provide to customers.

Is it possible to do this without charging interest, only making the return on the spread against the rates they can get?

Are there standard algorithms that can be used to this end?

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The high leverage is only for small accounts (under 1 mil), and interest IS charged (and paid). And a lot of positions offset each-other, so the net amount is much smaller. –  Adal Apr 4 '12 at 16:34
I'm curious also what these people are up to? bitcoinica.com –  barrymac Apr 4 '12 at 21:35
I originally read this is "What is the typical way forex brokers can cheat their customers"! It's called "stop hunting"! –  Chloe Apr 5 '12 at 3:18

1 Answer 1

In a nutshell, the client only manages their own position, with the client credit line provided by the broker, whereas the broker manages all their clients' positions, using the broker credit line with their provider banks. You can work it out from there. Interest is presumably to do with cash deposits and loans.

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