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Forex Mythbusters

  • #1
  • First Post: Oct 28, 2011 4:21pm Oct 28, 2011 4:21pm
Hello fellow traders,

If you've been around FF long or just been trading Forex in general, you've probably heard a lot of statements of "fact" made that may or may not make sense.

I thought it might be interesting to start a trend to discuss some of these and determine whether they're more fact or myth.

Anyone can bring one up and we welcome your comments on any.

Here's one to get started...

"Brokers see your stoploss and hunt it"

My thoughts - so apparently some feel that when you set your stoploss on MT4 or wherever, that your broker will see that on your platform and go get it. My problem with this is how can a broker manipulate a whole market. If they go get my stoploss that I place just below a round number, that price will be reflected in the whole market. I just don't see how that's possible.
Now I can see how the market in general, and by that I mean the big boys who can actually move the market, could go get stoplosses at a common level, but no way would they care or know about my measly little trading.

Your thoughts?
  • #2
  • Oct 28, 2011 5:33pm Oct 28, 2011 5:33pm
I agree that I think its dumb that a broker would attack your stoploss just to rob you of a few bucks. Now if you had placed a stoploss in a kill zone, the big boys would wipe you out, and use the liquidity you just provided from exiting the market to fill their own orders, so that when the market pulls back the direction it was supposed to, they will be the ones in profit, because essentially, they kicked you out of your trade and stole it.
  • #3
  • Oct 28, 2011 5:44pm Oct 28, 2011 5:44pm
You need to visit the Metatrader web site. This is the firm which rents the MT4 platform to the thousands of brokers that offer it to their clients (i.e., you and me). Right there on their own website is a black & white description on how the MT4 can track every type of order generated by their codes. In other words, the ability for the MT4 platform to track stops is a selling point for their software!

You need to bear in mind that stop hunting is perfectly legal. There is no law in any country that I am aware of that criminalizes this behavior. So let me ask you... If YOU were a Forex broker, and if it was 100% legal to stop out your clients any time you wanted to, wouldn't YOU be tempted to make an extra few thousands dollars every day?

To answer your question, YES, it absolutely can be done. The trick is to find an honest broker that is happy taking spreads as their main source of income, and will leave your stops alone.
To improve is to change. To perfect, is to change often.
  • #4
  • Oct 28, 2011 6:27pm Oct 28, 2011 6:27pm
I guess where I'm not following is this... if I have a stop at say 141.995 and my broker wants to hit my stop the market would have to come down to my price. How would that be reflected in other platforms of other traders and brokers. Would their prices not also have to come down to that. If price on my broker goes to 141.995 it would have to for every trader on that broker. What am I missing here.
  • #5
  • Oct 28, 2011 6:36pm Oct 28, 2011 6:36pm
  •  MPP
  • Joined Jun 2007 | Status: Be yourself, everyone else is taken | 2,734 Posts
Quoting spyderman
I guess where I'm not following is this... if I have a stop at say 141.995 and my broker wants to hit my stop the market would have to come down to my price. How would that be reflected in other platforms of other traders and brokers. Would their prices not also have to come down to that. If price on my broker goes to 141.995 it would have to for every trader on that broker. What am I missing here.
1- spread - each broker can adjust there spread to meet there own agenda
2 - If you have your stop anywhere for any reason (round numbers, pivot points, MA's, fibs, etc) - almost certain many others will to, so the brokers have a common goal, even the ones that don't stop hunt will gain from the ones that do

so basically the big guns move the market, get close enough to your stop area - broker widens spread - kiss you trade goodbye
  • #6
  • Oct 28, 2011 6:54pm Oct 28, 2011 6:54pm
Quoting MPP
1- spread - each broker can adjust there spread to meet there own agenda
2 - If you have your stop anywhere for any reason (round numbers, pivot points, MA's, fibs, etc) - almost certain many others will to, so the brokers have a common goal, even the ones that don't stop hunt will gain from the ones that do

so basically the big guns move the market, get close enough to your stop area - broker widens spread - kiss you trade goodbye

It sounds like a two person team could make a killing.

You go long 1 lot with a 20 pip stop.

I'll go short 10 lots without a stop.

When the "big guns" move the price down to hit your stop, I'll close out in profit.

I don't see how we can lose.
  • #7
  • Oct 28, 2011 7:06pm Oct 28, 2011 7:06pm
Quoting MPP
1- spread - each broker can adjust there spread to meet there own agenda
2 - If you have your stop anywhere for any reason (round numbers, pivot points, MA's, fibs, etc) - almost certain many others will to, so the brokers have a common goal, even the ones that don't stop hunt will gain from the ones that do

so basically the big guns move the market, get close enough to your stop area - broker widens spread - kiss you trade goodbye

That was my original point. I totally see how the big guns can move the market as a whole to take out some common areas. I just don't see any way a broker, on an individual trader's basis, can move to hit a stop. Lot of traders try to "hide" their stops, but if the broker's or the big boys go after an area it's going to hit it anyway. So what's the point of hiding
  • #8
  • Oct 28, 2011 7:07pm Oct 28, 2011 7:07pm
Quoting billbss
It sounds like a two person team could make a killing.

You go long 1 lot with a 20 pip stop.

I'll go short 10 lots without a stop.

When the "big guns" move the price down to hit your stop, I'll close out in profit.

I don't see how we can lose.

Lol... I had thought of that too. One more reason I don't think its as common as folks think...but what do I know.
  • #9
  • Oct 28, 2011 7:20pm Oct 28, 2011 7:20pm
I didn't say it was common. I said that this feature (along with many more besides) are hard coded into the MT4 platform to be used by which ever broker rents the platform from Metatrader.

How "common" it really is, is in direct correlation to how honest your broker is. A bucket shop who intends to stay in business for only a year or so will do this 100 times a day and never give it a second thought. Alpari or Oanda, etc., who are in for the long haul and try to provide a genuine and honest platform and trading experience might only do it 100 times per year -- or never at all.
To improve is to change. To perfect, is to change often.
  • #10
  • Oct 29, 2011 1:28am Oct 29, 2011 1:28am
Quoting forexhard
I didn't say it was common. I said that this feature (along with many more besides) are hard coded into the MT4 platform to be used by which ever broker rents the platform from Metatrader.

How "common" it really is, is in direct correlation to how honest your broker is. A bucket shop who intends to stay in business for only a year or so will do this 100 times a day and never give it a second thought. Alpari or Oanda, etc., who are in for the long haul and try to provide a genuine and honest platform and trading experience might only do it...
Funny I was speaking with a rep from Alpari UK yesterday about their spreads etc compared to Deltastocks and comapring them both.
He said about Alpari...

No stop hunting, which I read as, they can stop hunt they chose not to.
Perhaps they should put it on their web site.

No requotes
No stop hunting
LOL

Stop hunting is part of the game for big boys.
  • #11
  • Oct 29, 2011 9:28am Oct 29, 2011 9:28am
I know everyone "says" there's stophunting by brokers...and I'm not here to say they don't...but I would like more than just people saying it happens. How about a compelling example on how this would happen given the above mentioned limitations.

Now granted if you're scalping and have a super tight stop maybe a broker could widen a spread, but how in the world could they commit the resources to do that for every trader on every trade. Plus if you have a larger stop, say 20 pips, they certainly can't widen the spread that much, especially during london/ny
  • #12
  • Oct 29, 2011 10:09am Oct 29, 2011 10:09am
Quoting spyderman
I know everyone "says" there's stophunting by brokers...and I'm not here to say they don't...but I would like more than just people saying it happens. How about a compelling example on how this would happen given the above mentioned limitations.

Now granted if you're scalping and have a super tight stop maybe a broker could widen a spread, but how in the world could they commit the resources to do that for every trader on every trade. Plus if you have a larger stop, say 20 pips, they certainly can't widen the spread that much, especially...
so, after however many posts, have you answered your own question yet? or do you really need to keep asking if it's possible for brokers to get away with printing bars that are different to every other brokers feed and have absolutely nobody notice, ever?

devil's advocate : mt4 doesn't log the ask side and only prints bars based on bid prices, so yes, it's quite possible for the spread to widen in a fake manner and have no one particularly notice their trade get unfairly closed... unless you happen to find other people in an exact same trade at the exact same time (and have this absolutely verifiable by actually logging Ask prices) who were not stopped-out while you mysteriously were. the question then becomes, how likely is it that you will find anyone bothering to log Ask prices? it'll be a rare day that you see a chart printed based on Ask prices instead of Bid. anyone logging mt4 ask prices is entirely bound to the fact that they quite likely never received all incoming ticks anyway, so all attempt at logging ask prices is futile and pointless and will never be proof of bullshit widened spreads.
Congratulations ScalaFX for coming out of the closet!
  • #13
  • Oct 29, 2011 10:11am Oct 29, 2011 10:11am
Spyderman, you are totally missing the point.

You are obviously under the assumption that the MT4 chart your are viewing is accurately representing the market. When in reality, what you are watching is a video game that is being programmed and distributed via your broker to your laptop. An honest broker will ignore all of the master commands available to them by the maker of the video game and will send you a close representation of the true Forex market. A less reputable broker (what we call a bucket shop) will take liberties with your feed, and will use those master controls to subtly alter 5 or 6 features, so that by the time it reaches you (or me), it no longer represents the true market. This is exactly why there are "differences in feed" when you view several different platforms at once. In reality there is nothing wrong with the feed, but with how the feed is being manipulated.

If you're still having trouble wrapping your head around the concept, change "Forex" in the above statements to TIVO or Comcast. A broker might have 10,000 clients. Comcast has millions. When they control and manipulate video feeds into millions of homes we think nothing of it. In fact, we have come to EXPECT great full time service from those guys. So if they can do it for millions, why can't a broker manipulate the feed for just a few thousand?

Remember, EVERY broker manipulates and alters the feed a little bit. When you see a spread mentioned on your charts, that is a broker manipulation. That spread does not appear in the "real" Forex. But your broker stands between you and the real Forex, and has total control over your MT4 platform. Adding in spread, and widening the spread at certain times, is in fact a form of manipulation that changes the nature of the "real" Forex feed. But it can't be avoided, not even with an honest broker, since spread is their primary source of income. The only way around this is to find a broker that charges a flat commission and no spread of any kind.

Unfortunately, there are brokers which manipulate much more than just the spread. These are the ones we try to stay away from.
To improve is to change. To perfect, is to change often.
  • #14
  • Oct 29, 2011 3:27pm Oct 29, 2011 3:27pm
Sorry, not trying to be "dense" here guys. So are we then saying that the disreputable brokers have some sort of programming where then can go after stoplosses. If not, then again, how could they devote the time or resources to go after individual trader's stop losses.

If you're still having trouble wrapping your head around the concept, change "Forex" in the above statements to TIVO or Comcast. A broker might have 10,000 clients. Comcast has millions. When they control and manipulate video feeds into millions of homes we think nothing of it. In fact, we have come to EXPECT great full time service from those guys. So if they can do it for millions, why can't a broker manipulate the feed for just a few thousand?

I follow the logic here but I don't think Comcast alters that feed for every individual subscriber, which is what the brokers would have to be doing.

I guess I'm the only one on FF who has a hard time understanding the logistics behind a broker taking out my little .01 lot stoploss that's 20 pips away from the market.

so, after however many posts, have you answered your own question yet? or do you really need to keep asking if it's possible for brokers to get away with printing bars that are different to every other brokers feed and have absolutely nobody notice, ever?

Guess I'm not totally following the thinly veiled sarcasm here but my intentions aren't to get any question answered. My intent with the thread was to discuss some common held ideas and see what the merits of each, or lack there of, are.

To interject another Forex mantra...

Don't trade on Friday (different traders stop at different times, i.e. after London close Friday...after noon London time, etc.)

What are your thoughts on the pros and cons of this philosophy?
  • #15
  • Oct 29, 2011 3:52pm Oct 29, 2011 3:52pm
Quoting spyderman
To interject another Forex mantra...

Don't trade on Friday (different traders stop at different times, i.e. after London close Friday...after noon London time, etc.)

What are your thoughts on the pros and cons of this philosophy?
Late Friday chart may blend with early Sunday technicals for long-holding drawing devices, at least in the few times I've tried it.

The Sunday "gap" has a high % chance of retracing.

Holding over the weekend is a nail biter. So, if you somehow forget to close a trade Friday afternoon, you have the Sunday gap to test your SL (if any) with. And, I've tried to enter or change a trade on the weekend for when the market reopens -- MT4 won't allow it.


-- The truth of it seems real. An experienced forex trader may have a contrary, better answer.
  • #16
  • Oct 29, 2011 4:01pm Oct 29, 2011 4:01pm
Quoting ha-pattern
Late Friday chart may blend with early Sunday technicals for long-holding drawing devices, at least in the few times I've tried it.

The Sunday "gap" has a high % chance of retracing.

Holding over the weekend is a nail biter. So, if you somehow forget to close a trade Friday afternoon, you have the Sunday gap to test your SL (if any) with. And, I've tried to enter or change a trade on the weekend for when the market reopens -- MT4 won't allow it.


-- The truth of it seems real. An experienced forex trader may have a contrary, better answer....
Yes I've had that same experience. No fun gapping through your stop loss.

One argument I've heard against Friday trading is that everyone is "profit-taking". Not sure I understand how that would effect me negatively. I mean if someone is selling off and maybe thus lowering the prices that would benefit me if I'm short...
  • #17
  • Edited 6:31pm Oct 29, 2011 6:21pm | Edited 6:31pm
Quoting spyderman
Yes I've had that same experience. No fun gapping through your stop loss.

One argument I've heard against Friday trading is that everyone is "profit-taking". Not sure I understand how that would effect me negatively. I mean if someone is selling off and maybe thus lowering the prices that would benefit me if I'm short...
"Selling off" can mean from a short or a long. Thus, they're slowing down any activity that veers from the current trend.
That sounds interesting, what you say, because that implies that the end of the week tends to stay with the trend. This matches up with the Sunday "gap" (Oanda saying there is no gap), which often radically changes the trend, at least for a brief moment.

So I tested, with what little consistent data I have from mb trading, this late Friday sell-off idea.

I found it holds water. There are some late-week trend breaks in my string of examples, only no Friday ones.
Some of the Friday moves are more conceptually than literally within the trend, though, so my interpretation of what a trend is 1) shows bias and shows a need to be careful in definition of trend
and 2) suggests use of the widest average edges of a trend to avoid trading against a large move to the other side of the trend's channel.

Each week's start has a pair of TL's for the week to channel within, most all of them anchored in the first half of the week.
The sixth chart shows an extended TL; you can ignore it, I was playing with how the weekend start/end may (as I noted in last post) project moves.
I also include a little extra interpretation of the inter-trend segues, such as "doubling/halving the width of current trend" or "dependent on last week's trend".

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This is a very small sample, so while I am not fully convinced of the myth's efficacy, the myth portrays a real variable in how that area of every chart plays through.
  • #18
  • Oct 29, 2011 8:04pm Oct 29, 2011 8:04pm
I'm going to have to take some time to digest those charts. Thanks for the hard work.

Might it be fair to say then that counter-trend trading on Friday would be much more problematic then trend trading. Seems for those riding the main trend would be less likely to be "selling" off.
  • #19
  • Oct 30, 2011 4:53am Oct 30, 2011 4:53am
Thank you guys for your analyzes. Unfortunately there're lots of bucket shops which provide us with this evidence.
  • #20
  • Oct 30, 2011 6:28am Oct 30, 2011 6:28am
Quoting spyderman

"Brokers see your stoploss and hunt it"

My thoughts - so apparently some feel that when you set your stoploss on MT4 or wherever, that your broker will see that on your platform and go get it. My problem with this is how can a broker manipulate a whole market. If they go get my stoploss that I place just below a round number, that price will be reflected in the whole market. I just don't see how that's possible.
Now I can see how the market in general, and by that I mean the big boys who can actually move the market, could...
I don't know if brokers hunt stop losses but the market seems to - the market pretty much seems to have this uncanny ability to do whatever it takes to make the majority of traders wrong. I suppose it has to really, as the trends can't continue without people being fooled into taking trades going against the trend.

What part brokers play in this I don't know, but all that proprietary information they have must be worth a lot to somebody and I don't believe they simply do nothing with it.

Perhaps it's as simple as brokers knowing that most small traders have their stop-losses around a certain level so they place their orders at this level, knowing that the level will almost certainly be hit?
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