Yes, I do agree with you. It is precisely, and only, this counterparty aspect which is the source of real risk and not actually the MM activity per se. But I consider this only to be a potential area for problems and is not maybe so easy or worthwhile from the broker's point of view to exploit as many may believe.
When one opens a trade then we do have a true MM situation. The broker is continually offering a constantly changing live bid/offer and the broker does not know when, or on which side, you are going to hit.
Similarly, if one chooses to close a position at market then the broker still has no knowledge of when you will hit his current bid/offer which is constantly showing there.
However, the situation changes when one has pre-set stops in the market, and this is maybe the one major area where there is the opportunity for practices such as stop trawling, for example.
Whilst the broker is the counterparty, I think it is a fallacy to state this as the broker is "trading against you". Their counterparty role is more just a passive state and I really do not believe that a broker feeds different price feeds to separate individual clients in a sense of actively trading against them. Certainly, the spreads can and will vary depending on the client type and account type and source market spreads. But it is not the broker who is trading against you, it is the market as a whole.
When a broker has a mass of open positions that are changing all the time, they are only interested in monitoring their overall net directional exposure, As long as their net exposure remains neutral (or within specified limits and directional objectives) then they really don't have to care which individual trades and clients are gaining and which are losing.
I doubt whether there are many traders here on BP that actually trade more than 1 lot sizes and I suspect that there are many trading maybe only 1-5 microlots? In these cases I think it is ridiculous to suspect that a broker would be interested in targetting individual trades (but I don't know that, it just wouldn't make much sense to me!). They know that the vast majority are going to end up losing through their own incompetence anyway and if in the meantime their account balance goes up or down a thousand or two is it of little consequence in the long term and they just collect the spread/comms income in the meantime.
However, if they do have clients that regularly trade significantly large positions then it is a simple matter for their systems to flag these, or other single large risk events, and hedge them out automatically.
We all know there are rogue brokers, but there are also many that are long term business concerns that are trying to work with their clients to help them grow into high value customers with substantial funds in the accounts. Their contributions in training, trading ideas, market information, customer help, etc are all geared towards this mutally beneficial business relationship.
The horror stories are the ones that get onto forums like this, but there are also, surely, many, many, traders who are just comfortably and trustfully getting on with their business with no problems at all?