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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
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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
    
Apparently, providing all tbis leverage is quite hard... –  Bob Jansen Jan 16 at 18:54
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It's not hard to provide the leverage, but all leverage is risky. If your upstart broker can't do it then you pay a fee and backup to a bigger broker with the facility. They might also require that they have oversight and run some risk checks on your book. When you get the credit you negotiate lower fees or you do it yourself. Then the CHF/all comes unhinged and you're down the tubes, while you're big brother banker is explaining to shareholders why they didn't see your blow-up coming. –  Nathan S. Mar 17 at 22:06

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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