what is a typical way forex brokerages can provide cheap leverage for their customers?

External question — Quantitative Finance Stack Exchange Author: barrymac Original post: https://quant.stackexchange.com/questions/3185 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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?

External answer — Quantitative Finance Stack Exchange Author: rupweb Original post: https://quant.stackexchange.com/a/14436 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. 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.