Why NOT to SET stop losses in FX trading

[Beijin]

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.

Please kindly refer to the tick data as below

2013.12.05 15:30:01 0.81559 0.81657
2013.12.05 15:30:01 0.81563 0.8166
2013.12.05 15:30:01 0.81614 0.81714

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

I think they may be telling the truth: it was not stop hunting, but a price gap due to the volatility during news release.

Anyway, what is this broker (just curious to know it)?

[Beijin]

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.

What is this broker?

Please say the name.

[Zaghloul]

Should I be worried about this with an ECN broker like IC Markets? About to go live with them soon and need to know.

[Beijin]

@juergen

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.

Cheers juergen
neuralfx.eu

1. What is this broker?

Please say the name.

2. If I were you, I would fill a complaint in the regulatory agency.

3. And I would post the chart with the strange daily low you mentioned (as a proof of the stop hunting) in this forum (and every other popular forums).

If you do it, there will be less stop hunters brokers.

[XGhostDogX]

Please name and shame the brokers that messed up your trading. There’s no harm in stating the truth and your problem.

[Robbie13]

HI Jurgen, what a great article. I have lost several small accounts due to this form of action. Can you tell me if this. If I dont set a stop lose but I do set a take profit. Will this reverse happen. The broker will ensure the trade never reaches its TP??? Thanks.

[o990l6mh]

People, be careful not to blame your own poor trading on the broker… I’ll say no more.

Sure, there may be some few instances of foul play, but the vast majority of: oh noes, price just hit my stop loss and then reversed, is due to nothing else than bad traders.

[juergen]

i don’t wanna say any bad things about brokers i haven’t traded with. but just be aware that you might get screwed on a few occasions. that’s it. and that applies to EVERY broker around. my article is about a broker among the top 5 worldwide - claiming that they use NDD - NoDealingDesk technology. well - they sometimes don’t obviously. bottom line: DON’T TRUST THEM! check every single trade etc…

[ixs]

this is a ****storm, who started it, can you prove they do that ?
what’s regulated brokers versus non regulated, what is the agreement you signed with them, does it say they can do that ?
if so, do the laws of the country you live in say they can do that cos in most cases if your laws say they cant no amount of signing contract will enable them to
like
’can’
because your law will over rule the contract since it would be illegal for them to have you sign something thats not valid
if you knew they were able to do that, do you have the right to complain ? if you didnt , we’re back to what does your enforced laws say ?
i could
like ask for someone with a lot of clout and xp here to put up a thread on 'how to pick a broker by reading the fine print’
please ?
one of the site-founders maybe ?

[ixs]

People, be careful not to blame your own poor trading on the broker… I’ll say no more.

Sure, there may be some few instances of foul play, but the vast majority of: oh noes, price just hit my stop loss and then reversed, is due to nothing else than bad traders.

this is a double post but yea, /agree and no, its due to the market moving, i cant see brokers spying on single clients doing this, i could see them scripting this, its technically possible to have this being done under certain conditions but on an audit that would show, what company would risk that ?

[juergen]

HI Jurgen, what a great article. I have lost several small accounts due to this form of action. Can you tell me if this. If I dont set a stop lose but I do set a take profit. Will this reverse happen. The broker will ensure the trade never reaches its TP??? Thanks.

they won’t screw you on take profits since they don’t/can’t manipulate market prices. they only manipulate pip spread which does not trigger take profits but only stop losses. you’re on the secure side with take profit orders.
example with AUDNZD: let’s say current quote is 1.0800/1.0803 - one client has a stop loss at 1.0820 and the other a take profit at 1.0820. the broker manipulates the spread to 1.0800/1.0825 for a second. result: ALL the stop loss orders between 1.0803 and 1.0825 are triggered and NO take profit is triggered since SL is triggered by the buy-rate and take profit by the sell-rate which remained stable at 1.0800. the opposite is true for SL and take profit BELOW the current quote. with the same results: SL triggered and take profit not triggered.

i hope that helped a little.

[Zzcmathe]

I think they may be telling the truth: it was not stop hunting, but a price gap due to the volatility during news release.

Anyway, what is this broker (just curious to know it)?

Axitrader. They are one of the larger Aussie brokers

[cheshboy]

o99016mh,
I think you may have a point with regard to ‘own poor trading’. I noticed that most of the comment were posted by Newbies like myself, and therefore trading technique could be playing a part.
Couple of things I have picked up on in Forums Presentations etc is to always make sure you include the spread in your stop loss, and secondly to avoid putting stops on round numbers like 1.6400 or 105.00 etc. Hope this helps a little.

[Cosimo10]

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. "

:33: Yes, it looks like whatever happens it is always quiet convinient for them.

[KEBEK]

Thank you juergen for exposing this not so fair practice, to which I was many times a victim in the first few of my 7 years of trading. I became very prudent with my stop losses and most of the time I keep them in my head ( and certainly when I am in front of my computer. For my long term trades I now use two accounts with two different brokers and if I am long on a pair I might have a limit sell order lower on the other account, that acts like a stop loss eventually, putting me in neutral like until I can see clearly where the market ( not the broker ) wants to go. I trail it manually quite tighty behind and if it is grabbed it is for the good reason.
Needless to say that you have to be serious with trading to get in so much trouble but hey! fool me once,… fool me twice but find elsewhere a greater fool

[wmorris3825]

I’ve heard of this happening but I’ve never experienced it personally. I set my stop immediately after entering every trade. Depends on brokers I suppose, I’m with trade station.

[MrGone666]

Your opion is poorly expressed and if you believe that well, trading is not for you.

[Agnes_Mwangi]

Quite interesting. Now I know I am not the only one who experiences this. Setting imaginary SL is a good idea. My only worry is one can get disrrupted and the next thing you know, you have lost so much. I would be very scared without a SL.

[KEBEK]

Then Mr Gone would you be kind enough to tell us whose opinion you are refering to

[juergen]

Quite interesting. Now I know I am not the only one who experiences this. Setting imaginary SL is a good idea. My only worry is one can get disrrupted and the next thing you know, you have lost so much. I would be very scared without a SL.

i’ve been trading my own account and client accounts over the last 15 years on the FX market and always encountered practices like this one with several brokers - also large and well known ones. i’m not surprised that many traders experienced the same thing since brokers don’t stop out only one account but all the traders on their platform. it’s a huge scam. and believe me - i know the difference between news driven widening of spreads in extremely volatile seconds and a one second widening of 20 pips triggered by stop loss hunting. as i mentioned - just check and compare daily highs and lows with various brokers and you’ll be absolutely stunned! and i’m NOT talking about dealing desk brokers only - also about no dealing desks. some of them are doing the same. in my opinion the best ones as regards stop loss hunting are ECNs, but you better find out yourself. open practice accounts!