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Stop Hunting: Fact or Fiction?
I can hear the flames being written from here but I think this is a good subject and is something that I get tons of emails about. Does stop hunting exist? If it doesn't why are the rumors so persistent? I think I can answer those two questions. First, stop hunting is the belief that your dealer, who is the counter-party to all your transactions, is moving their market prices to snag your stop. They "want" to do this when the market is moving that direction anyway and they want to clear out your position. There are a few solid reasons why this is improbable with a reputable dealer and an easy way to prove that it happened to you - if you feel that you have ever been "victimized." 1. The dealer makes money on transaction volume. They offset their risk already so stopping you out reduces your account without making them any money and they would lose your account. 2. Most retail accounts are fairly small and nearly impossible to manage on an individual basis for the dealer. 3. If the dealer moves the market to grab stops, they will affect their institutional business, which would materially affect their profitability. 4. Moving the market like that on the dealer side means that they are trading the market without the ability to offset their risk on the other side of the transaction. In my experience, most of these complaints focus around fills received during news announcements. Some traders get ticked that they did not get a price that essentially did not exist because the market "gapped." The best solution is to talk to your dealer or prospective dealer and ask how they handle the news. If you really want to know whether your fill was unfair, compare the prices to an institutional grade feed that does not come from your dealer. I have asked for an account statement many times from traders complaining about this and have yet to receive one. Of course, if your dealer is headquartered in Nigeria then all bets are off. The best way to manage your risk during news events is to understand what may happen with a tight stop or use an options hedge. Become informed and account for all the risks you are exposed to as a forex trader. To see the video, click here: [url]http://www.pfxglobal.com/index.php?option=com_content&task=view&id=1179&Itemid=117[/url]
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