Do forex brokers hunt stops

Beginner Questions
21

@bradley79 You must of missed the 20+ threads that discussed ECN and STP Brokers… over the last 2 or so years.

99% of retail traders are not using STP models… You need upward of ~$80k to have a place at the Interbank Table.

So 99% of traders are using Market Maker Brokers as their Counterparty. You lose…they win…simple.

They definitely hunt zones… clusters of stop orders…

ECN means nothing… Electronic Communications Network… ALL online Brokers are accessed by this method.

Have a read back through the threads and it’s all there…

Forex.com and FXCM.com even acknowledged they are the counterparty…

22

CySEC has the option to opt-in and buy STP or DD licences.
I`m telling you what I’ve seen from experience as a part of a broker’s marketing team.
The place I worked at did not have a MM/DD licence. So, yeah.
Must have been the 1% :wink:

Again, not arguing. Other colleagues that came in that company from other brokers said that they in fact did stop hunt.
It used to be something MarketMakers tend to do with traders that win consistently.
When the brokers sees you’re winning consistently and start making a pile of cash they’ll flag your account to start slowing your orders (slippage) and/or random spikes will occur making your orders to be stopped out your SL levels to get hit.

23

Well I think yes, brokers do hunt for stop levels to result in losing trades of their clients. But it completely depends upon the clients choice whether he want to become a prey or not. We all know the tendency of market makers, they set high mark ups and play against their clients. Because they know that when it comes to trading 90% of traders are “losers”. Now how to avoid this and safe guard your strategy? You must be thinking a better analysis or something technical. I can commit to my statement that nothing will change; you will continue to make loses. All we need to do is make an intelligent move and shift to ECN brokers instead of market makers. I have been trading with many market makers like Easy markets, XM trade etc and have always been disappointed. But this year I changed my broker to pure ECN type and my trades are nothing but better.

24

No … Oanda hunts stops. its a one line if statement. it’s set up to stop out your order on entry if you’re just outside the spread. The intent is to get you to add more stop value. If you do you will lose more.

This isn’t conjecture this is fact.

The turn around was to never have a stop loss set for more than 50 percent of spread. set you take profit at price +100 percent of spread then add 20 to 40 percent on top of that for yourself.

That way the most you can get stopped out for is 50 percent and Oanda has an incentive not to stop you out … because that’s the only way they can get 100% of spread.

You use the number of units to control cost and set profit.

The video is telling you nonsense

25

Thanks for the advice Candice … I too am looking at changing to an ecn. I’m retired … I wanted a project so I started forex trading. The technical side of the house was/is like reading tea leaves to me. But I am pretty good at reading the fundamentals, transactional analysis trade analysis and the like.

I write my own software. I chose Oanda for it’s rest v20 API. The API gives me a full range of controls over the ordering process and more transparency to the order execution process than a trade station. I can “see” when an order has been stopped out or a spread is being added to a sell transaction on entry.

I think it is because the actual execution of transactions is hidden that Oanda believes they can get away with much more. No worries I will demo trade until the problem is fixed or I know it will not be fixed.

26

But I see, few ECN brokers are fixable on the retail Forex traders. By the way, I got your point.

27

There are several Traders I know that have been profitable with Oanda for years. I’m not going to say all market makers are the same, but heavily regulated ones are about as safe as you can get. I DO Believe there are stop hunters out there, but its a liquidity thing, not a Stop that retail trader and take his money thing. If you look at large funds/institutions- If they want to make a large move Long on EURUSD and they see a divergence pattern. They know there is liquidity below the low of the move. Thats how trades get stop hunted, the broker doesn’t really have a play in the moves unless they have a severe imbalance of a position they are trying to square, they will then invest the other direction. Nothing to do with Hacking your MT4 or anything like that.

28

It’s true; I personally know few traders who put negative reviews on their broker when they crash their balance, although they lost that balance because of low trading skill actually.

1 Like
29

The broker does not need to hack anything. You’re in their platform, using their server. They can see everything you’re doing. All your orders, stop loss levels, margins etc. If a Market Maker decides to - he can wipe you out.

30

Which broker do you use please as I am also in the uk

31

I spreadbet with LCG.

SB is only an option in a few countries. At least here its well regulated. Check to make sure the firm segregates clients’ funds from their own capital in separate bank accounts, that they are registered with the FCA and that your funds would be protected by the financial clients protection scheme so if the firm goes bankrupt you get your deposited cash back.

32

Exactly right! …you’re in their platform using their server they are poling the transaction for stop profit and price levels. A single line of code stops you out when you get close to a stop. Another may prevent you from reaching your take profit number. And if that’s not enough another will prevent you from actually entering say a sell transaction if you don’t place your stop at least a spread length away when you win too much. The latter is new so I know adjustments are being made

33

Hi @tommor and @CrisValenciana,

You are both correct in saying well-regulated brokers cannot hunt stops the way others in this discussion thread have suggested.

For example, in the US, forex brokers are regulated by the CFTC and NFA. The rules governing how we must execute client orders, and then report the time and price of each and every one of these transactions to the regulators are too many to list here, but below is an excerpt from just one rule to give you an idea of the protections in place for forex traders:

NFA Compliance Rule 2-36 imposes a number of obligations on a Forex Dealer Member (FDM) regarding the manner in which it handles customer forex transactions. Compliance Rule 2-36(b)(1) prohibits an FDM engaging in a forex transaction from cheating, defrauding, or deceiving or attempting to cheat, defraud or deceive any other person. NFA Compliance Rule 2-36(b)(4) prohibits an FDM from engaging in any manipulative acts or practices regarding the price of any foreign currency or forex transaction. Also, NFA Compliance Rule 2-36© requires an FDM to observe high standards of commercial honor and just and equitable principles of trade in the conduct of its forex business. NFA’s Board of Directors (Board) adopted these provisions to ensure that an FDM acts honestly, fairly and in the best interests of its customers.

Unfortunately, the term “counterparty” has been misunderstood by many retail traders. Investopedia correctly defines “counterparty” like this:

A counterparty is the other party that participates in a financial transaction, and every transaction must have a counterparty in order for the transaction to go through. More specifically, every buyer of an asset must be paired up with a seller who is willing to sell and vice versa.

All trades require some sort of counterparty, so for example, the counterparty to an option buyer would be an option writer. One of the risks involved in any transaction is counterparty risk, which is the risk that the counterparty will be unable to fulfill his duties.

The last point above highlights why a retail forex trader always has a retail forex broker as his counterparty. While retail forex brokers are willing to assume the counterparty risk of retail forex traders (the risk that these retail traders are unable to cover their losses), the largest banks in the world (those which trade forex with each other in the interbank market) are not willing to assume the counterparty risk of individual retail forex traders or even the counterparty risk of smaller retail forex brokers.

Since every transaction must have a counterparty in order for the transaction to go through, and the largest banks in the world are not willing to assume the counterparty risk of individual retail forex traders or even the counterparty risk of smaller retail forex brokers, major forex brokers like FOREX.com provide an important service to retail forex traders and smaller retail forex brokers by providing them with access to the market they would not otherwise have.

We question this 95%+ figure. We often see something like it mentioned on discussion boards by retail forex traders, but can you point to any reliable study that confirms it?

In the US, forex brokers are required to report client profitability stats to the CFTC every quarter. Below are the stats FOREX.com reported to the CFTC for the past year:

For the calendar quarter ending March 31, 2018, there were 35,139 active non-discretionary trading accounts of which 28% were profitable and 72% unprofitable.

For the calendar quarter ending December 31, 2017, there were 33,885 active non-discretionary trading accounts of which 33% were profitable and 67% unprofitable.

For the calendar quarter ending September 30, 2017, there were 34,138 active non-discretionary trading accounts of which 32% were profitable and 68% unprofitable.

For the calendar quarter ending June 30, 2017, there were 34,911 active non-discretionary trading accounts of which 31% were profitable and 69% unprofitable.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

You make a great point here, @CrisValenciana. FOREX.com offers volume-based rebates as a way to attract more successful traders.

A misconception some retail traders have is that a broker like FOREX.com must not be offsetting the risk on the other side of many of the orders we receive from clients, when actually the exact opposite is true. While we won’t speak for other brokers, in 2016, approximately 98% of FOREX.com’s average daily retail segment trading volume was either naturally hedged (offsetting buy orders from some clients with sell orders from other clients) or hedged by us with one of our liquidity providers.

We discuss forex trade execution in more detail in this post: Who is the counterparty in an exchange?

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34

You make a great point, @Trendswithbenefits.

It’s worth noting that for institutional traders, our parent company, GAIN Capital, offered ECN solutions through the GTX marketplace, which we recently sold.

However, for retail traders, FOREX.com is a market maker, because we believe market making is the best way to provide our retail clients with reliable pricing at retail trade sizes while effectively managing our own risk. We are fully accountable for every execution and don’t outsource that responsibility to a third party.

It’s important to understand that if a particular retail forex broker tells you they are not taking the other side of the trade, that only means they must offset your trades with another firm that is a market maker. That’s because market makers perform a vital service, not only in forex, but in many financial markets, including major stock and futures exchanges.

Consider what the world’s largest stock exchange says about how their market model works:

The cornerstone of the NYSE market model is the Designated Market Maker (DMM). DMMs have obligations to maintain fair and orderly markets for their assigned securities. They operate both manually and electronically to facilitate price discovery during market opens, closes and during periods of trading imbalances or instability. This high touch approach is crucial for offering the best prices, dampening volatility, adding liquidity and enhancing value.

DMMs apply their market experience and judgment of dynamic trading conditions, macroeconomic news and industry-specific intelligence, to inform their decisions. A valuable resource for our listed company community, DMMs offer insights, while making capital commitments, maintaining market integrity, and supporting price discovery.

1 Like
35

Well that’s not what this is …

And by the way companies also hire shills to monitor reviews and post just the kind of post you’ve made … they’re calling it reputations management.

As mentioned I’m retired … using Oanda’s rest v20 API with my own algorithm for determining whether a currency pair is going to appreciate or depreciate … and its working well enough for Oanda to start throwing crap in the way. In other words I’ve not lost anything.

What has gotten me to write and forwarn is it has progressed beyond simple robbery to rule change. Spread is always applied to the buy half of a transaction. That means at the begining in a buy transaction and at the end at a sell transaction. Now they want to apply it on entry to sell transactions too.

Try to cheat me … ok I’m up for it. Change the rules to do it and I’m upset. Oanda should man up when they get beat and pay the bill.

36

You make a great point here, @beaupritchard, and it’s something we touched upon in this earlier discussion, where unfortunately someone was fooled by reviews he read online: I think I’m being scammed by my broker

37

The NFA has been contacted … thanks for the rule book information

1 Like
38

You get that I am not talking about something I “think” has happened … here’s a suggestion “ask your own brokers when it is they apply spread on a sell transaction. If the answer is “on entry” then you are in violation of the NFA rules”

For what it’s worth “how is it you came by this post on this forum” …

39

ahh … thanks for the posts. I’m not knocking all brokers. Thanks for the insight … about how much is a stp licence

40

This does happen and you can see it on the chart. However this is not the case with me. I am not placing stops where big companies can figure out where they are. Mine is a straight 50% of spread from price FOK order. If the broker wants to go in at half spread on a buy fine with me. On a sell since spread doesn’t get added til the end it doesn’t matter and the most I can be stopped out for is 50%.

Its in Oandas interest to not stop me out and get 100% of spread when I win. So I ask you … who’s interest isn’t it in … that’s right “its not in “the brokers” interest”. The broker is acting counter to Oanda (the companies) interest. I think as soon as the company is aware of that things will change.