StopLoss and Role of Liquidity Providers | Forex Factory

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StopLoss and Role of Liquidity Providers

  • #1
  • First Post: Edited 10:50am Aug 20, 2014 10:36am | Edited 10:50am
StopLosses and Role of Liquidity Providers

Today i want to discuss with FF members about stoplosses , Every trader who wants to be safe in market or protect his account from unusual moves places a stop loss , most common method uses by trader is stoploss below the support or above resistance some traders place rigid stops of specified pips.

The most common problem we see that many lot of traders complain that broker hunted their stops while some others say that market is fixed and it just came to my stops and then reversed.

Many of the GURUS say that no one wants to take your stops their are thousands of traders trading and its impossible for any one to take a specified stops.

My opinion as far brokers are concerned they cant give spike more then 5 pips most of the times

Liquidity providers are the animals in the market who can do what they want to do and most of the time they are after traders money.

How? IMO a liquidity provider knows where are the pending orders of 5 or 10 retail brokers so ..... let me show you a chart to support argument..

https://charts.mql5.com/5/493/eurusd-d1-tw-corp-2.png
https://charts.mql5.com/5/493/eurusd-d1-tw-corp-3.png

Now IMO what these liquidity providers do is just SELL some cheep currency to others banks with low volume to push it down. Execute stops and then buy back from these banks using these orders. No hard work easy money , both liquidity providers and brokers are in profit and the trader looses cause of tight stops.

Whats your take on it ? (correct me if am wrong)
  • #2
  • Edited 9:27pm Sep 3, 2014 2:51pm | Edited 9:27pm
Liquidity providers make money from commission, they don't really need to manipulate market prices to make a profit. All they care about is getting as many people as possible trading so they can get more commissions. Brokers make money from the spread every time you place a trade, so they're in the same boat. The last thing either of these guys want to do is drive away traders by taking out their positions.

The stop hunting you're talking about is the result of large traders who hunt stops in order to get a better position or quick $$.
  • #3
  • Sep 3, 2014 3:42pm Sep 3, 2014 3:42pm
Since we are talking here about Stop Loss in general I recently read about Stop On Close orders and I find them really eye opening when it comes on using Stop Loss orders in the first place...here's some definitions:

Quote
Stop on Close (aka Stop Close Only) is a risk management technique used by swing and position traders. A Stop on Close is a stop order that uses the closing price as the stop trigger. The Stop on Close is not an intraday stop order actively working at the exchange, it is an end of day stop that is manually executed. For example, let’s say you are long Corn from $7.00/bushel. You have a stop on close at $6.85. If Corn closes at $6.85 or lower, then the trader would exit right before the close or on the open of the next trading session.

Quote
The benefit of this method is that you are not stopped out intraday if there is a quick spike down in prices but then the market comes back up by the end of the day.

Quote
The drawback of this method is that the market can continue to move against your stop throughout the day. If we are long corn from $7.00, our stop on close is $6.85, and we close at $6.75, that is 10 cents past our stop. Our stop on close was 15 cents, but the actual loss is going to be 25 cents in this case.

Now as you can see this Stop On Close order is only applied in Futures markets we don't have that in Forex per se, but can be utilised through some use of EA. {This would be a good part where someone makes this EA}

Anyway I found it useful in manual trading as I am now closing trades only when the candle closes below or above certain defined price.
  • #4
  • Sep 3, 2014 11:02pm Sep 3, 2014 11:02pm
Quoting merquise
Since we are talking here about Stop Loss in general I recently read about Stop On Close orders and I find them really eye opening when it comes on using Stop Loss orders in the first place...

This is an interesting concept - obviously more suited to those trading with charts higher than the daily time frame. I wonder how successful it would be when applied to lower time frames such as 8hr or 4hr charts using the same rules at the close of each candle.

For the amount of risk in this strategy you would want to make sure you are not overleveraging, the risk increasing the lower the time frame.
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  • #5
  • Sep 4, 2014 3:53am Sep 4, 2014 3:53am
Yes indeed.. On lower time frames I would say that the risk is lower in fact, because 4hr candle statistically can't be that huge in comparison to daily or weekly candle. Of course the risk needs to account for those unforeseen consequences by adjusting your leverage accordingly...
  • #6
  • Sep 4, 2014 4:18am Sep 4, 2014 4:18am
In July Pepperstone gave me a 250 pips(!) invisible spike on USD/SEK, i.e. the spike has never shown up on their official price chart. (Probably because all other traders would had to shrink their screens to 1/5th to be able to see the bottom of the 250 pips spike...)

The official "explanation"? Well, they can fill an order wherever there is "liqudity", even 250 pips away from the visible bid/ask.

And why not show the spike on the chart? Well, they show only the "highest tier" liquidity fills...

Woooow! How convenient...? In other words they can keep a 0.1 lot liquidity at the "highest tier", and they can fill any and all orders > 0.1 lot at 250 pips away!!

Apparently it is LEGAL...! Go figure...
  • #7
  • Sep 4, 2014 4:30am Sep 4, 2014 4:30am
Paracelsus Pepperstone is ASIC controlled broker. File a complaint against them... I would, no mater what..
  • #8
  • Sep 4, 2014 4:56am Sep 4, 2014 4:56am
Quoting merquise
Paracelsus Pepperstone is ASIC controlled broker. File a complaint against them... I would, no mater what..


Yes, I am drafting up an official ASIC complaint, and apprently they are ready to fight, stating repeatedly that the "next available" lower tier liquidity was 250 pips away from the officially quoted bid, and being only an ECN broker, they had no controll over where the order was filled. So they could have filled it even 500 or 1000 pips away... Why not...?

Usually such "surrealistic" fills are handled as "off-quotes" by more reputable brokers.

No account is safe from such events...! So any broker can wipe out any account within seconds just by claiming that the next "tier 2" liquidity provider was 1000 pips away.
  • #9
  • Sep 4, 2014 5:53am Sep 4, 2014 5:53am
If it was staged and they have no hard proof in backing that up than you will win Just file that complaint and don't worry...
  • #10
  • Last Post: Sep 4, 2014 6:18am Sep 4, 2014 6:18am
Quoting merquise
Yes indeed.. On lower time frames I would say that the risk is lower in fact, because 4hr candle statistically can't be that huge in comparison to daily or weekly candle. Of course the risk needs to account for those unforeseen consequences by adjusting your leverage accordingly...

Very true, however where I am coming from is that on the lower time frames usually a trader will be looking at smaller price moves/patterns with smaller stop losses and targets. It's all about relativity. If you have a tighter stop loss but are still looking to risk a fixed percentage of your capital (let's say 1%), you will need to leverage more than you would on a higher time frame to risk the same amount of capital. The speed at which your position can be wiped out is a lot faster than if you were playing off daily candles.
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