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  • #1
  • First Post: Sep 20, 2005 6:33am Sep 20, 2005 6:33am
Hello,

New to this site. Just a thread caught my eye earlier about a somewhat frustrated trader after he was stopped out by his broker.
One of the replies was that brokers hit your stops on "purpose" and that this action was legal or ok.

Sure it was legal, but this is a major problem for our trading as the odds are stacked against us from the time we enter the trade. Not only will they charge us a spread but they are after our risk capital also.

So is trading a game of a 1 trader wins and 1 trader loses ?
No it is not, neither is it a zero sum game, as the broker is taking 3 pips off me and 3 pips off you.

Trader "A" takes a long position @ 1.2000 with a 20 pip stop and a target of 1.2040. Seems fair enough, 2:1 risk versus reward with a tight stop.
Trader "B" takes a short position @ 1.2000 with a 20 pip stop and a target of 1.1960. Also seems like a good trade.
Both traders are -3 from the start. The market slowley goes to 1.2020 and Trader "B" gets stopped out. Trader "A" is now in a comfortable position as his P@L now shows 17 pips. His target is still 23 pips away and rather than bringing his stop to breakeven he leaves it where it is to give the trade some breathing space. We all know what happens next, 17 becomes 16 then 15 and so on. The market comes back down to 1.2000, then 1.1980 and trader "A" stop is hit.

The above is an example but this is what happens for real in the market on a daily basis. So is it true that losers pay winners ? No. Both traders lost money even when they where going in opposite directions.
Who made money ? The broker, firstly on the spread x2, then on the risk capital x2.

Is this a reason why we should all abondand the FX market ? No, but be aware of what your broker can do to extract your cash.
Take a harsh look at the FX market and your broker and get rid of the " losers pay winners " logo that probably got you interested in the first place, lets face it a lot of people think they can do something better than others " i can beat you" " I bet Iam better than you at this "
Maybe you can/cant, but beware of the middle man. Because he never loses.

Thank you.
PS: As i said in a earlier thread Iam working with an ex employee of a brokerage firm. We are putting together a list of what brokers do.


Looking forward to your replies.
  • #2
  • Sep 20, 2005 6:45am Sep 20, 2005 6:45am
Good post. I have been preaching, that many of the retail brokers(some of the big ones especially), in my opinion cause a lot of the losses that small traders occur. I'll be looking forward to your list.


JohnFX
  • #3
  • Sep 20, 2005 7:05am Sep 20, 2005 7:05am
Quoting boycie
....
Who made money ? The broker, firstly on the spread x2, then on the risk capital x2.
.......
Take a harsh look at the FX market and your broker and get rid of the " losers pay winners "
Well I agree with you in the general sentiment of your post, brokers are NOT transparent between the trader and the market.

But on some details it is more complex I'm afraid.

The broker would get the spread in his pocket if he would not ask for a counterpart outside on the interbank market. In practice he has the same problem as we all have risk efficiency of his capital but as soon as you place a large trade I guess he will forward it immediately on the market to cover himself and then the spread is not smaller and some times even wider than the one he will propose.

This is all part of the broker business model where does he make his money! for sure they are making money with our money !

In other post I said do not put stops ! It is like putting a cake on the table in front of your kids

Other things are treat carefully the “extreme market conditions” brokers uses these high volatility time to hide their practices.



Good trade anyway….
  • #4
  • Sep 20, 2005 7:26am Sep 20, 2005 7:26am
Quoting boycie
Hello,

New to this site. Just a thread caught my eye earlier about a somewhat frustrated trader after he was stopped out by his broker.
One of the replies was that brokers hit your stops on "purpose" and that this action was legal or ok.

Sure it was legal, but this is a major problem for our trading as the odds are stacked against us from the time we enter the trade. Not only will they charge us a spread but they are after our risk capital also.

So is trading a game of a 1 trader wins and 1 trader loses ?
No it is not, neither is it a zero sum game, as the broker is taking 3 pips off me and 3 pips off you.

Trader "A" takes a long position @ 1.2000 with a 20 pip stop and a target of 1.2040. Seems fair enough, 2:1 risk versus reward with a tight stop.
Trader "B" takes a short position @ 1.2000 with a 20 pip stop and a target of 1.1960. Also seems like a good trade.
Both traders are -3 from the start. The market slowley goes to 1.2020 and Trader "B" gets stopped out. Trader "A" is now in a comfortable position as his P@L now shows 17 pips. His target is still 23 pips away and rather than bringing his stop to breakeven he leaves it where it is to give the trade some breathing space. We all know what happens next, 17 becomes 16 then 15 and so on. The market comes back down to 1.2000, then 1.1980 and trader "A" stop is hit.

The above is an example but this is what happens for real in the market on a daily basis. So is it true that losers pay winners ? No. Both traders lost money even when they where going in opposite directions.
Who made money ? The broker, firstly on the spread x2, then on the risk capital x2.

Is this a reason why we should all abondand the FX market ? No, but be aware of what your broker can do to extract your cash.
Take a harsh look at the FX market and your broker and get rid of the " losers pay winners " logo that probably got you interested in the first place, lets face it a lot of people think they can do something better than others " i can beat you" " I bet Iam better than you at this "
Maybe you can/cant, but beware of the middle man. Because he never loses.

Thank you.
PS: As i said in a earlier thread Iam working with an ex employee of a brokerage firm. We are putting together a list of what brokers do.


Looking forward to your replies.
First of all I think this is a reason to make your accounts with more than one broker. This way you will have the opportunity to use the broker arbitrage if one of them is doing what you say he is doing. I think that in a while the power of the market will make the brokers yield to normal prices. They can't wuote wrong prices. In the end they will lose in this game.
  • #5
  • Sep 20, 2005 8:55am Sep 20, 2005 8:55am
Quoting boycie
Hello,

New to this site. Just a thread caught my eye earlier about a somewhat frustrated trader after he was stopped out by his broker.
One of the replies was that brokers hit your stops on "purpose" and that this action was legal or ok.

Sure it was legal, but this is a major problem for our trading as the odds are stacked against us from the time we enter the trade. Not only will they charge us a spread but they are after our risk capital also.

So is trading a game of a 1 trader wins and 1 trader loses ?
No it is not, neither is it a zero sum game, as the broker is taking 3 pips off me and 3 pips off you.

Trader "A" takes a long position @ 1.2000 with a 20 pip stop and a target of 1.2040. Seems fair enough, 2:1 risk versus reward with a tight stop.
Trader "B" takes a short position @ 1.2000 with a 20 pip stop and a target of 1.1960. Also seems like a good trade.
Both traders are -3 from the start. The market slowley goes to 1.2020 and Trader "B" gets stopped out. Trader "A" is now in a comfortable position as his P@L now shows 17 pips. His target is still 23 pips away and rather than bringing his stop to breakeven he leaves it where it is to give the trade some breathing space. We all know what happens next, 17 becomes 16 then 15 and so on. The market comes back down to 1.2000, then 1.1980 and trader "A" stop is hit.

The above is an example but this is what happens for real in the market on a daily basis. So is it true that losers pay winners ? No. Both traders lost money even when they where going in opposite directions.
Who made money ? The broker, firstly on the spread x2, then on the risk capital x2.

Is this a reason why we should all abondand the FX market ? No, but be aware of what your broker can do to extract your cash.
Take a harsh look at the FX market and your broker and get rid of the " losers pay winners " logo that probably got you interested in the first place, lets face it a lot of people think they can do something better than others " i can beat you" " I bet Iam better than you at this "
Maybe you can/cant, but beware of the middle man. Because he never loses.

Thank you.
PS: As i said in a earlier thread Iam working with an ex employee of a brokerage firm. We are putting together a list of what brokers do.


Looking forward to your replies.

If you would accept my opinion, it's still a zero sum market. The 2 traders lost money and the broker won this same amount of money. The broker or the market maker was actually acting as a trader in this example, so the broker cashed in the losses of the 2 traders, zero sum, isn't it??

Thanks,

Nader
  • #6
  • Sep 20, 2005 9:01am Sep 20, 2005 9:01am
Quoting mf4x
In other post I said do not put stops ! It is like putting a cake on the table in front of your kids
I agree with this, but this doesn't mean that you don't know your exit point. I am implementing this strategy. I know the exit point before the trade is live, but I don't enter the stop order so that I don't reveal my max drawdown to the broker. If I do so, I am telling the broker, if you can go get what I am willing to lose, then get, if you can't, then don't.

The only time I entered an OCO order with a stop and limit, I got spiked out just with just 4 pips and then the market went to my favour deeply. This was just a trial to see how probable will it be to get stopped out at just the stop level.

Know your exit, keep it in your mind, and when the market goes near it, execute it. You will experience slippage, but that's the price to be paid to hide information about your strategy from the brokers.

Thanks,

Nader
  • #7
  • Sep 20, 2005 9:35am Sep 20, 2005 9:35am
I can see how mental stops would work if you are screen trading but what if you want to put on a longer term position, say a swing trade for more than a few hours or perhaps a few days - would you still use no stops?

One thing that could be done is use price alerts to phones, emails etc so that you get back to your desk and close.
  • #8
  • Sep 20, 2005 10:01am Sep 20, 2005 10:01am
Quoting Isotonic
I can see how mental stops would work if you are screen trading but what if you want to put on a longer term position, say a swing trade for more than a few hours or perhaps a few days - would you still use no stops?

One thing that could be done is use price alerts to phones, emails etc so that you get back to your desk and close.
Or use an automated execution system. Through a broker that has an API or through handwritten script that connects to the wireless portal of the broker.
Then when you go outside set your autopilot to close the position if price reaches X.
  • #9
  • Sep 20, 2005 10:15am Sep 20, 2005 10:15am
Exactly. Putting your long term trades on autopilot is essential in a market that is trading 24 hours, 5 days a week.

However, there is still another solution for this. If you are trading a long term trade, which could possible stay opened for several days, your stop would be high, much higher than the broker can afford to go after. I think that brokers or market makers can't afford going after you if your stop is higher than 80 pips, so you would be comfortable to enter your stop order without any fear of being spiked out.

Thanks,

Nader
  • #10
  • Sep 20, 2005 10:18am Sep 20, 2005 10:18am
Quoting narafa
I agree with this, but this doesn't mean that you don't know your exit point. I am implementing this strategy.
Nader
yep sure, when I'm saying no stop I take for granted that when someone enter a trade he knows before hand what he is going for ! And what he is prepared to risk. this is what I mean by having a strategy.



Anyway I do not like automated system that do not consider general market feeling most of the time if I cannot be behind me screen I close everything.



There is a big difference between eurusd losing 20 points and hitting your alert alone (the only pair moving) and eurusd following the other pairs. again all this market feeling cannot be programmed (easily) this is the feeling part of the job.
  • #11
  • Edited 10:21am Sep 20, 2005 10:20am | Edited 10:21am
Quoting narafa
. I think that brokers or market makers can't afford going after you if your stop is higher than 80 pips, so you would be comfortable to enter your stop order without any fear of being spiked out.
Hi Nader,
Could you please explain this? Are you saying that your broker could move the market, say, 50 pips, only in order to take your position?

Thank you,
Bonete
  • #12
  • Sep 20, 2005 10:40am Sep 20, 2005 10:40am
Thanks for all your replies.

A mentall stop may not even be the answer. We all have a risk tolerance and the broker knows this. If you normally trade with a 30-50 pip risk and put a mentall stop in and the market moves 35 pips against you, the brokers now knows you are uneasy. Granted he does not know excatly where your stop is, but he can squeeze you a bit more until you exit.

From the earlier treads I replied to was one where I said brokers love tight stops. Whats a tight stop ? It differs for each currency pair because of the volatility. In my opinion 35 pips is a tight stop. With random "noise" it can be easily put under pressure.

I think one major area in trading where we give the broker a huge advantage over us is in leverage, we use too much.
If you where to work on a "system" that traded a lesser amount or value of lots and then widened your stop, i think you may be then taking some of the advantage away from the broker. Try it on a demo for a period.

In FX most trader expect to make a decent amount of money, sometimes they expect too much and therefore use high leverage to get there.

Iam not going to judge anybodys trading (but I probably already have) but do believe in a modest return on my capital per year while risking no more than 2% per trade with a decent size stop.

I have interviewed a trader last month who we could all learn a bit from.
After interviewing this person I felt a great Power (Yes and Iam not even spiritual) This person trading looked simple but I knew a lot of years went into the developement.

Iam a newbie here so I dont want to upset any of the owners or moderators, but would love to share parts of this interview with you.

Maybe I can be advised further.
  • #13
  • Sep 20, 2005 11:07am Sep 20, 2005 11:07am
Quoting boycie
Thanks for all your replies.

A mentall stop may not even be the answer. We all have a risk tolerance and the broker knows this. If you normally trade with a 30-50 pip risk and put a mentall stop in and the market moves 35 pips against you, the brokers now knows you are uneasy. Granted he does not know excatly where your stop is, but he can squeeze you a bit more until you exit.

From the earlier treads I replied to was one where I said brokers love tight stops. Whats a tight stop ? It differs for each currency pair because of the volatility. In my opinion 35 pips is a tight stop. With random "noise" it can be easily put under pressure.

I think one major area in trading where we give the broker a huge advantage over us is in leverage, we use too much.
If you where to work on a "system" that traded a lesser amount or value of lots and then widened your stop, i think you may be then taking some of the advantage away from the broker. Try it on a demo for a period.

In FX most trader expect to make a decent amount of money, sometimes they expect too much and therefore use high leverage to get there.

Iam not going to judge anybodys trading (but I probably already have) but do believe in a modest return on my capital per year while risking no more than 2% per trade with a decent size stop.

I have interviewed a trader last month who we could all learn a bit from.
After interviewing this person I felt a great Power (Yes and Iam not even spiritual) This person trading looked simple but I knew a lot of years went into the developement.

Iam a newbie here so I dont want to upset any of the owners or moderators, but would love to share parts of this interview with you.

Maybe I can be advised further.
The mental stop is not always the answer. It requires money management. Let me give you an example.

A trader with an account of $4,000, and who is using proper money and risk management, always trades only 2 lots as a maximum with high probability trades, and 1 mini lot with lower probability trades. Let's say that this trader is comfortable about risking 2% of his capital on trades of higher probability, and only 1% of his capital on trades of lower probability.

So, when entering a trade with a higher probability, he will be using 2 mini-lots, and the max risk allowed would be 2%, which is $80. Now assuming that he is trading a pair which has the USD as the secondary currency, e.g. EUR/USD or GBP/USD or AUD/USD, then the 1 pip is equivelant to $2 in profit or loss in this situation. Thus his mental stop loss is 40 pips away from the entry price (Spread not included). With spread into consideration, the actual stop must be 34 pips (based on 3 pips spread).

Now the broker does not know all this, but as you say the track record of this trader says that he used to close his losing trades at around 30-50 pips. Now the job for the broker is being harder, as I am forcing him to study my records, rather than see my stop on his software, that's one.

Now another thing, the broker can manipulate, but can't keep manipulating all the time, they has to stop at some point. If the prices are going against the trader, and the broker is manipulating, then probably, the trader was wrong on his trade. What I believe is that the broker can't manipulate against the masses, and can't manipulate too far in fast moving periods, so it's either you are wrong, and having the broker against you, along with the masses, or you are correct, and the broker is with you against others.

Now consider that the trader gets a low probability trade. He is going to use just 1 mini-lot, and risk only 1% of his capital, which is $40, or again 40 pips, which is 37 pips after spread. Not a big difference from the pips point of view, but completely different from the money point of view.

In both cases, the broker must try to manipulate the pair to get your out by the 34-37 pips, but you are losing less on one and losing more on another, doesn't make any difference to the broker, but it makes a lot of difference to you.

Now bear in mind that during broker manipulation, if the broker didn't catch you, he loses money, so he either be sure that he can get you out, or never do it at all. If he did it, he will get you out if he can see your stop, but if he can't, and you decided to leave the trade without a stop entered, the broker realize that you can bear huge drawdowns that he can't afford, so simply, trying to panic you won't be a solution, because he won't be able to predict your action. If he moves the trade 30 pips against you and you still don't close it, he is in serious trouble, because they know they can't keep it that way for too long, and because they know that they are going to lose some money because you decided not to close the trade, and because he know that there is a huge long way to force closing the trade because of margin.

Brokers are thinking probability too, and when the probability of not catching you is high or even moderate, they don't bother.

Mental stops are not easy to implement, but they are better in my opinion.

Thanks,

Nader
  • #14
  • Sep 20, 2005 11:17am Sep 20, 2005 11:17am
Quoting SoyYoConBonete
Hi Nader,
Could you please explain this? Are you saying that your broker could move the market, say, 50 pips, only in order to take your position?

Thank you,
Bonete
Although this is not 100% confirmed or proven, many believe so, and I am one of them.

Yes, the broker can move the market to get you out of the trade, but I think this is a general action which is being taken by all the brokers together. They hedge against the majority. I am not convinced that all the price actions we see on our charts are from the retail traders trades. There is another big player who moves large sums of money everynow and then, this player is the brokers.

I am not 100% sure, but many traders experienced this, stops being hit either exactly or just by a few pips, and then the price reverses back again. This is not a coincidence for sure, there must be some sort of manipulation that we don't know everything about yet.

Technology and trading softwares can help automate this process, so no human actions needed.

Thanks,

Nader
  • #15
  • Sep 20, 2005 11:39am Sep 20, 2005 11:39am
How does a broker move the price? There has to be a buyer and a seller. My theory (I could be wrong), is that a company like REFCO moves it by trading between their three companies (RefcoFX, FXCM, AMC). When they want to move the price to take out stops or a traders position, etc., they simply initiate volume trades between two of the entities. IMO it's the main reason they have three FX companies all owned by the same parent company.


JohnFX
  • #16
  • Sep 20, 2005 12:33pm Sep 20, 2005 12:33pm
Thanks for clarifying. Although I can't prove this either, I believe that this kind of manipulation is VERY unlikely.

If what you are saying is true, it would be very easy to take advantage of it:

1) Buy anything, place stop 50 pips below at broker A.
2) At the same time, sell the same pair at broker B, with no stop.
3) When broker A is about to hit your stop, remove stoploss, and close broker B's position for 50 pips profit.
4) When the market reverses, also take profit from broker A.

Since I don't believe in manipulation, I don't think this strategy would work. But if it actually is manipulated in this way, then forex is really an easy way to make money.

Quoting narafa
I am not 100% sure, but many traders experienced this, stops being hit either exactly or just by a few pips, and then the price reverses back again. This is not a coincidence for sure, there must be some sort of manipulation that we don't know everything about yet.
I think this is just the result of bad trades. I have had my share of trades stopped exactly; but I've also had many trades come within 1 pip of my stoploss without hitting it. Conversely, I've had many trades hit my takeprofit exactly and then reversing back, so I could say someone's manipulating the market in my favor.

Real manipulation could be:

1) Your broker shows spikes that none other shows. But in this case, they usually refund your account.

2) Your broker is showing different prices to different customers. I could be wrong, but I think this actually is illegal, and could be easily proven checking other clients' feeds.


My belief here is that the hype about stop hunting is just another fake conspiracy theory. I'm open to being proven wrong, though. In fact, I wish the forex market were rigged, as it represents a profit opportunity. What happened with the guy (at this forum) that promised to show he could move the market?


Best regards,
Bonete
  • #17
  • Sep 20, 2005 12:51pm Sep 20, 2005 12:51pm
I believe brokers do this all the time. The pound for example will swing 30 to 40 PIPs at any given time. I especially belive the brokers do this right before announcements. One would think that the market would be pretty flat 30 to 40 minutes before an announcement. I've seen on the Charts a spike up 40 PIP and then down 40 PIPs or I have also seen the market move with in a 15 minute time frame up 40 and then down 40. I quit trading during annoucements because of the fact. I would hedge my trade so if it shot up or down I would plan on making a quick 30 to 40 PIPs but I also want to play it safe just incase it flys up then down so I would have a 40 PIP stop which always seems to be hit. There is my spill


Fdisk
Fdisk Please I just want a few pips. Is that too much to ask?
  • #18
  • Sep 20, 2005 12:58pm Sep 20, 2005 12:58pm
The problem with trying arb. a sitiation like that is that only the broker knows when he is going after stops. Doesn't necessarily mean he is doing it 100% of the time. So you can't be sure if the price moving against you is simply normal price movement or manipulation. And I feel brokers usually go after the tighter stops of daytraders and very short term traders like in the 10-20 pips range. Too dangerious for them to go after 50 pip stops on a regular basis.


JohnFX
  • #19
  • Sep 20, 2005 1:11pm Sep 20, 2005 1:11pm
Thanks for your point of view SoyYoConBonete.

Your view is that this type of practice is very unlikely, My view is that it is very likley. This view is not just a wild statement it actually comes from an ex employee of a brokerage firm.

There is no nobody saying that if your stop is at X then your broker wants to hit it all the time. He would be very happy if he could hit it all the time but this is not always possible.

What needs to be said is that brokers love tight stops because they are easy to trigger and the will go after them given half a chance. The follow up to this would be to trade with a large stop but not risk morey capital or maybe have a mental stop.

Your point on 1-4 could be achieved more easily by just trading one position with a more generous stop.

Of course you can have a bad trade a get the direction wrong, this is where your larger stop comes in and takes you out for your % loss.
But have you ever had a trade stopped out only to go back in your direction ?
So have I, more times then I care to remember.

So in order for me to maxiumise my chances I need to be buying/selling at apporite levels and have a stop that can keep me out of the brokers head lights.

Final point in relation to your own trading. I can safely say "fact" I have never had a trade come within 1 pip of my stop without hitting hit and never had my target hit on the pip and the turn the opposite way.

I believe you if you say its true, but find it amazing.
  • #20
  • Sep 20, 2005 1:13pm Sep 20, 2005 1:13pm
Quoting JohnFX
The problem with trying arb. a sitiation like that is that only the broker knows when he is going after stops. Doesn't necessarily mean he is doing it 100% of the time. So you can't be sure if the price moving against you is simply normal price movement or manipulation. And I feel brokers usually go after the tighter stops of daytraders and very short term traders like in the 10-20 pips range. Too dangerious for them to go after 50 pip stops on a regular basis.


JohnFX
Well, in that case you just shoot for a 10-20 pip arb.

I agree, you can't be sure if it's normal price movement or manipulation. But then, how can you conclude that brokers are manipulating the markets at all?

Best regards,
Bonete
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