I notice that with Forex cfd brokers, very very often, during Forex consolidation patterns, and frequently on explosive breakout candles, there are great big FU wicks and tails, wiping out a whole bunch of stops, before the market continues or blasts off in the direction it is going to go in.
Often these FU tails and wicks aren’t publicly viewable on 3rd party charting apps, but are there in all their vile glory on the brokers charting app.
Do these FU candles come about as a result of the broker dramatically widening the spreads, and in all the bumff we sign up to before joining, do we basically agree to them whacking the spreads all over the fkn shop just as they please whenever they feel they have too many winners riding the bus?
Were you trading EUR/USD a few hours ago by any chance? Had that triangle pattern, kinda bounced around a bit before settling down?
Anyway, there are unscrupulous brokers out there. With that said however, I think the majority of large forex brokers are legit, especially in the U.S. They have to be. Uncle Sam is looking for any excuse to shut down retail brokers so us average Joe’s have to go back to working regular jobs (my conspiracy theory for today).
Now I don’t claim to be an expert on the internal workings of financial brokers, far from it. But I have picked up on a few things in the five years I’ve been trading.
-
Us retail traders trade manually. Even if we set up an algo, it pales in comparison to the institutional programs that trade in miliseconds. Those computers are trading against each other, not us. You and I don’t matter to them, because it would take us eight lifetimes to generate the money needed to move the market for a split second.
-
During a volatile news event, like this morning’s GBP secretary of finance ministry whatever-the-hell speech, all those monster computers owned by the big banks got cranked up and ready to one-up each other. What happens during a triangle breakout? 50% of traders think it breaks up, 50% say down, right? Well, it’s the same with the computers. Except they work much faster than we do. One side of the fence said “up,” and the other side said “down.” As soon as the bulls took price well above the upper line, the bears had a big fat limit order to short it. This time, the bears happen to win. This is how we get those big “FU” bars.
-
Concerning the broker’s spread, you have to remember that your broker uses computers also. In fact, I often think of my broker as being a huge computer, an IT guy and a handful of customer service reps. That ginormous computer is doing zillions of calculations per second, and does a pretty good job, most of the time. However, when you get a huge spike in conflicting orders all at once (like we got this morning), that computer may need just a split second longer to process it. I think that may be what happened when the the spread widened long enough to stop a few of us out. The bid couldn’t catch up to the ask in time (or vice versa) and whamo! It got us.
One thing you may want to try is a “core pricing” model offered by more and more brokers. They offer you a tighter spread in exchange for a set commission. You pay the exact same fee as a spread, but it allows you to have a tighter stop. I’ve tried this model before, but prefer paying a spread. It allows me to see up front what I am paying in fees.
Another suggestion is to do like I do: use a stop wide enough to park a giraffe under it.
All the best on the charts.