Method I: The simplest way a Forex trading company makes money is through buy/sell (transaction) fees. The company offers trading currencies pairs to their customers. When a customer makes a deal, the trading company transfers the deal to the bank and charges the customer a fee. If the deal costs the company 2 pips and they then charge the customers 7 pips, they make 5 pips out of each deal.
Method II: The trading takes place over the Internet and the trading company knows exactly what is the status of the deals in all of the accounts. For example one may find that 50% of the deals are in EUR/USD long and 50% are in EUR/USD short. In this case they don’t need to have the bank involved. All they need to do is to wait. If indeed the EUR becomes stronger then 50% of the deals in the long position will win and the 50% of the deals in the short position will lose. In this case all they need to do is to transfer the money from the losing customers to the winning customers. Yet, they charged the customers 7 pips and therefore all the 7 pips becomes profit. Now, what if the ration is LONG:SHORT=75%:25%? In this case the trading company has an interest to balance the equation and therefore has an interest that more clients will enter the 25% side. Or they leave in house 25% both in long and short and transfer the remaining 50% LONG to the bank.
Method III: Here the trading company does not involve the bank at all. The trading company assumes that most of their customers will lose the deals and therefore stand on the other side of the deal. One of the key elements in Forex trading is the leverage. Since currencies don’t move much one relative to the other, it is hard to make money out of Forex unless you involve large sums of money. Leverage allows you to open large deals with small money. The larger the leverage the higher the risk a deal has to reach its stop-loss. A customer can place a deal that the trading company thinks is the right direction but also thinks that before this direction will prevail the currency pairs will move in the opposite direction. Since this customer chooses high leverage, the company predicts the deal will reach the stop loss before the market will shift, and therefore waits for this to take place instead of transferring the deal to the bank.
It is clear that in this case the trading company has interest that their clients will lose their money since in this case they will win. They will make much much more money that way as oppose to making money from trading fees alone. This is how Easy-Forex works as a what's known as a "Market Maker".
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