Rules of the jungle for Newbies

A few things you have to understand very clearly when dealing with spot forex market makers.

One:
Given the opportunity, your stops will be “gunned”. When I say gunned, I don’t mean a bazaar 50pip spike, what I mean is if volatility is at “X” and the market trades within “Y” pips of your stop, it’ll be triggered. This is automated. It won't happen every time but it will happen sometime.

Two:
There is a thing called individual pricing. What this means that the price I can buy or sell at on my trading platform will be different from the one you have. You probably were not aware of this and if you were, you may wonder why this is.

In a “real” market the market makers control their risk by the spread. In the case of a spot forex, the broker is the market maker and the only market maker. If they guarantee their spread then the are obligating themselves the buying and selling at a specific price regardless of market volatility which is ridiculous because they cannot effectively control their risk. However by using individual pricing they are in effect manipulating the spread 1 to 5 pips in their favour thus controlling thier risk. In addition to this, in some cases the price on your platform and the price on the chart reveals further manipulation such as price freezing. This happens a lot. Last Friday when the news came out a 2.30pm my time, the price difference between them was 15 pips for a almost a minute. (Yes you read that correctly.)

Another thing to consider:
Many say that Forex is too big to be manipulated and for more than a few minutes, this is true. There are participants, however, who do have the ability to move the market over the short term, either individually or collectively. Be aware of this and place your stops accordingly.

Forex is just like any other market and a lot of games are played andn as a result, in times of low liquidity, you will see price “engineering” taking place.
Now, your wondering, why would they do this? Think about it; if the market is in a bullish trend and you had the ability to move it down so you could then buy more currency “cheaply”, wouldn’t you do just that if the opportunity arose?


All this game playing may seem very unfair but it’s just the way it is. Who ever said trading was a fair game? It took me six months to realize what was going on and I adjusted my trading accordingly. Most don’t last three months so they never learn the “rules of the Jungle”.

steve

Also if you trade less liquid pairs (non USD majors for instance) then you can have a similar problem. Even within the majors the EURUSD and USDJPY are the top two, with the GBPUSD close behind the Yen and the USDCHF a poor fourth.

Another problem is trading outside the busiest market times. Forex is generally more liquid during the EUR & USD sessions - more players should lead to less manipulation (in theory anyway). So if you plan to focus on the Asian session (and if you live in that timezone then you may not have much choice) you may see more insider moves (spikes, false breaks etc). I've heard it being called "trading the noise" when the big boys play with their order flow and pick off the poor retail saps.

Even if you pick liquid pairs during the busy times you should be aware of placing your stops where the "herd" does - e.g. above or below well defined congestion zones or trend highs & lows or near well known support & resistance levels since the insiders can spook out the retail boys with false moves by bidding or offering the market higher or lower to create false momentum and then liquidate their position with your stops and also quickly doubling up on the other side.

I for example like to trade the Euro Majors instead but outside the EURUSD the manipulation may be more prevalent (although I think my puny orders won't probably catch much attention though).

"Rules of the Jungle" seems like a fitting title...like that!

YES, the two PRO seniors above are perfectly giving a piece of good advice/comments. I am trading with 3 different live accounts. L put the 3 live qoutes next to each other at all times. The movements of the prices for each broker are different. Realtimeforex.com has the most reliable qoutes; but the spreads are not so attractive. There are certain times of trading when their qoutes are between 2 to 5 pips more advantages than the others. That is why I use 3 accounts. I can thus choose among the 3 for each session. You can see where your broker stands. Realtimeforex gives a 30 day demo trial free.

That's perfectly true, and I learned it the hard way. Don't place your stops at obvious levels, as Elder advised. Better have them closer to market, so if/when you lose, it's a small loss... or further away, so they cannot be hit during the moves engineered by stop hunters.

I would rather call it the "Jurassic Park"

Thanks,

Nader

While not setting stops near obvious support and resistance levels is solid advice, I think it'd be wise to add that if you want to set stops further away, you should lessen your leverage. This will give you the freedom to be wrong (out of the money) for a while and not get stopped out or margin called and wait for the trade to come back in your favor (in the money) especially when the market is extremely volatile and your charts are looking like my heart monitor when I see Jessica Alba in person.

In addition to all this, do yourself a favour; Use only market orders as limit orders can and will be abused much like stops. The idea is to keep your "hand" hidden as much as possible and not reveal, to the guy you're playing against, your strategies.

Though it sounds like only a few get the priveledge of being the mighty Tyrannasoraus Rex.

Spot trades in the forex market are intended for immediate settlement. This means the trade is considered to have been completed once the buyer and the seller agree to the terms of the trade. The physical delivery of the currencies involved in the trade however, can take up to two days after the trade itself. A spot FX trade is a purchase or sale of one currency against another one, with delivery in two business days after the trade date. Nowadays, over 90% the FX spot transactions goes through automated electronic order-matching systems.