What is Stop Hunting and is it Bad?

What is stop hunting? Can it be detrimental for nee traders?

Stop-hunting falls into two types -
a) broker - when your broker artificially moves their quoted price or widens their spread to deliberately target their customers’ stops
b) market - when the big banks in the market move the price in order to hit a lot of stops set by other big banks

In a properly regulated jurisdiction, type a) is prohibited. That’s not to say it won’t happen but it attracts negative regulator attention and potentially large fines if they get caught.

The market moves all the time to hit stops. That’s part of what makes a market. Stops in places where the TA text-book tells you to put them are obvious hunting grounds for the big banks and easy pickings for them.

In both cases, tight stops are the more vulnerable. This means day-traders especially get their stops hit by what could be stop-hunting or it might be just normal volatility. Longer-term traders are obviously going to place wider stops and will not so often get caught by stop-hunting.

In any case, it is eventually cheaper to have a stop hit than to have no stop at all.

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