to get things straight right away: i’m 100% in favor of USING stop losses when trading forex but in my opinion it’s a mistake to SET them right away on your account when entering a trade. The reason for this is very simple: some FX brokers will kick you out of trades when being the counterpart of the contract you entered. We experienced this many times over the last years with various brokers.
How do they do this?
They manipulate either the sell or the buy rate in a very smart way. NEVER both rates but only either sell or buy, therefore increasing the sell-buy spread considerably for a short moment or a few seconds to kick you out of your contract – and not only you! Many traders. I assume that several brokers make a lot of money doing so.
Let’s have a look at an example:
We entered AUDNZD long at 1.1040 and set a 60 pip S/L at 1.0980. a usual sell-buy spread for this pair is somewhere between 2-5 pips during normal trading hours. Well, the quote went down to 1.1005 sell rate and we still felt comfortable with 25 pips remaining. 2 minutes later we were stopped out and the pair still quoted at 1.1005. only the daily low had jumped to 1.0975 within a second IN ORDER TO trigger stop losses.
We did watch the screen during these 2 minutes and nothing happened but the change in days low and a one second jump to 1.0975 of the sell rate. It jumped back to normal immediately afterwards.
On no daily chart of any FX broker worldwide this jump could be found since it basically never happened and the buy rate never changed. However, it happened on the accounts and stop losses between 1.1005 and 1.0975 were triggered and traders kicked out of their contracts.
Please make sure to understand that in this example the BUY rate remained stable around 1.1008 – 1.1010. only the SELL price decreased and shortly caused a 30 pip sell-buy spread for a short moment. This is done for triggering stop losses in trades where the broker is the counterpart. Exactly the opposite is true for short contracts with S/L being triggered by a manipulated high.: the SELL price remains stable and the BUY price jumps for a moment to trigger the upper SLs.
Important to understand:
No exit or limit orders are affected by that practice since a short limit is triggered by the BUY quote and a LONG limit by the sell price. Both remained stable in the examples above! So NO TRADER PROFITS from this practice – only the broker. Needless to say that these jumps and S/L triggers yield a lot of risk free money for the broker. Please understand that I’m not going to name any brokers in this context but you can check daily highs and lows on any pairs at any broker yourself. Just make sure that the time periods you compare are the same – in other words: watch out for time zones. You’ll be stunned by the differences even among large FX brokers. Especially when checking side pairs. Which AUDNZD isn’t – it’s among the top 10 most traded.
Avoid the ones with the lowest lows and the highest highs when using S/Ls. You won’t profit from these extreme values with your limit or exit orders. Extreme values are due to higher spreads which doesn’t help you at all.
To be trading on the secure side simply don’t use preset stop losses at all when you’re at the computer. Set the S/L in your mind and exit the contract when it’s reached. This way manipulated low/highs won’t hurt you since they bounce back immediately. You won’t even notice them.
Another solution would be a price alert. Set the alert 5pips away from your S/L. when you receive it enter your account and check what’s going on – real price change or manipulated short term jump.
Then take action.
Of course these practices don’t occur on every S/L you set and not on every trade where the broker is your counterpart. But they do occur many times when the quote is getting near your S/L. please notice that I’m NOT saying that brokers are manipulating market prices or quoting wrong ones. What I’m saying is that SOME OF THEM have a habit of sometimes quoting very mysterious high and lows.
Well – I hope that this article will be of some help to a few traders out there and I wish all of you a lot of success in 2014.
Thanks for sharing. Hopefully those who are also seeing this will get the courage to report (or at least share) so that other newbies out there (who are more vulnerable to broker scams) can take notice.
Thanks for this meaningful post. It will definitely help newbies to find out reason for prices that reverses immediately after triggering their stop losses.
I think a better way to tackle this problem is for us to share those brokers’ name who have the tendency of manipulating the price for their own benefit publicly so that collectively we could boycott and stop using their service.
I have experienced this myself with a largish broker, from my experience they are all mostly market makers and do what they like…sorry to be cynical.
When I questioned them about it the usual response was given, oh no we don’t do that.
The market went exactly to my stop loss which was miles away then straight back up.
my broker offers a additional tool for managing the trades. It connect with mt4 and the account. Just both must be online. Then I can manage my trades or set SL and TP, OCO, BE, partial TP etc and the broker wont see it because it is only on my computer.
Its ActivTrade with smart order.
(btw I wont advice the broker, I saw negativ reports)
but maybe there are other tools similar out
Thanks for sharing this.
I have been a littel bit concern with my broker (CMC Markets) lately because it has happened to me two times (at least those I have noticed). First time it happened was when my S/L was triggered 3,5 pips away from my S/L in a long position in the pair EUR/USD. I mean, the chart never reached that point but somehow my S/L was triggered and bounced back inmidiately. I inmidiately contacted my broker and they explained to me that “due to the high volatility in that moment the chart was not able to register that price change accurately, but in reality the price did reach that level”. I guess I had no other option that trust my broker and play along with this argument.
Then the second time happend when I set a limit order to buy gold. I turn on my computer on the mornig, I checked the chart for gold and saw that the candle went down through my limit order and bounced back up again. I was very happy because by now i should see already some positive number in that trade. Unfortunately, it was not so. I noticed that my limit order was still intact, my broker did not trigger the order. I inmidiately wrote to them demanding an explanation but I never got an answer. I am not a full time trader and have many other things to do than trying to get an answer from them.
I am just a begynner and I trade very little money in each position precisely because I want to be sure I can trust my broker before I really can put some interesting money on the table. I guess I should just keep looking for a more trustable broker. Impossible mission? Probably. That is why I think your advice is so worthful. The only problem is that you have to be glued to your screen.
Cosimo - I had an identical experience with MB Trading - they have the same response to the first incident and the response they gave me for the second situation with my limit order was " it did reach that price - but only for a couple seconds and they were unable to connect me with a buyer/ seller to take the other side of the trade in that amount of time. "
A similar experience happened to me, so I queried my broker. Normally there is a 2-3 PIP spread. Below is there response
"For your trade with ticket number *********, it was a sell AUDCHF order. To get out the sell order, you will have to look at the ASK price which is not displayed on the chart.
The Ask price was moved from 0.81660 to 0.81714 and gapped through your stop loss price 0.81694. The movement could due to the release of US GDP and personal consumption data.
As we are an STP broker your fills are coming from the interbank FX market. In this market no orders ever come with a guaranteed price as your order can only ever be filled at a level that banks are willing to transact at (ie in the actual market there is no such thing as a guaranteed s/l). Unfortunately as this is a legitimate fill on the open of the market in this situation there is nothing that can be done to improve the fill."
This movement stopped me out by 2 PIPs on a trade that then went over a hundred PIPs the way I wanted. No good to me as I was asleep and unaware until the next morning
as mentioned in the article a solution might be to set the SL in your mind and order a sms or email alert whenever the quote gets close to your SL. for eurusd you could set the alert 5-10pips away from your mental SL for example. you could then exit the trade via your smart phone. takes 10 seconds. of course this is not a perfect solution but it’s way better than getting stopped out from 20 pips away. fortunately i don’t have a problem with this since being at the screen is my job but part time traders should not set stop losses the way brokers want them to. they should use the alert method in order not to get screwed.
I also experienced something like this. I had the platform running and it told me my order had been fulfilled. Upon looking, the price had jumped back up (I was long in EURUSD). The price went through 40 pips in a split second. I had another part time trader near me and we looked at anything, news etc that could have caused the price jump, and there was nothing. Needless to say, I was so very upset and ended up missing out on more than a 100 pips on that trade. I never followed up on it but in hindsight, I should have.
This is actually not true. With most platforms the “sell” price is identical to the current market price. This is especially true with the MT4 platform. I have also noticed this is true of the FXCM NDD (No Dealing Desk) platform. The “sell” or “bid” price is always the same as the current market price and it never changes.
Therefore, if we are only on the “buy” side of a trade our stop loss will never get hit by a widening spread. When I enter a trade I am always long and that is why my stops never get hit by a widening spread.
keeping a list of those for peoples who dont read the fineprints even when having a financial contract seems like a very sound enlightened despot kind of thing to do since you know … the 99% need to be protected from themselves in some cases, yo.
right ? sadly … yes, right, you know what i mean, you can take it emotionally however you want.
But … why would you stay with one who does that ? Why would you sign up like that. Thats not a broker, thats a bookie … from the sound of it
He best against you, he does not provide leveraged trades for a fee, right ?
nothing criminal there i suppose unless some kind of eur-us rules prevent that for regulated parties. No clue
But, seriously, im still waiting for the day someone says : you HAVE to find what works for you since the psychology of it all is never 100% the same for any two people so there is no one size fits all completely. Your tailor, which is you in this case will ALWAYS have to make a few adjustments to any kind of system before it fits you like a glove.
Theres no 100 do this or that but yea, brokers who can be PROVEN to manipulate and who like say themselves they keep your money ??? (uh?) when you lose should be put on a protect the illiterate list i suppose … sorry for the harshness and i do think 99% of those 99% is as full of shyte as 99% of those 1% … not much difference when it comes to bs
This behaviour of ensuring your SL is reached is typical behaviour of a Market Maker. I am not certain but hopeful that the more reputable brokers who are ECN do not do this. I use Alpari UK MT5 account and not had this problem.
In case your not familiar with the concepts of brokers the babypips school has an article under kindergarten>brokers101. I would post the link but not allowed until I make 3 more posts!
If you had this experience with a regulated broker I’d suggest that you first contact the broker and demand that they remove the price spike and reverse your stop out, if they refuse you file a complaint. If your broker still refuses to correct their price spike, then I’d find another broker of better reputation and adherence to good conduct.
I hope you’re aware that you’ll have a hard time finding a broker with a worse reputation than CMC Markets? I’ve never used them myself, but over my more than five years I have heard more negative stuff about them than about all other brokers put together…
