Brokers hunting stops?

[wombat22]

Hi all,
I'm just beginning to learn about FX trading and a thread on this site managed to convince me (luckily) not to part with a heap of cash to join LTG Goldrock. Can someone please explain what some of the posts meant about the broker hunting down stop loss points cause they can see all the trades lining up? Cheers

 

[AlexGreen]

FX brokers are not usually 'brokers' in the traditional sense. So they don't match an independent buyer and seller.

Instead, they'll normally take the opposing position to your trade so if you go long they go short. Which means they have a financial interest of you getting stopped out.

So if the market is 1.30 and they can see a lot of client sell stops at 1.2985 they might offer the market down to trigger the stops and then bid it back to 1.30.

Do they do it al the time? Of course not but it's something to watch out for because as a whole the online FX industry doesn't have the best of names.

If I was going to open an account I'd go with one of the larger brokers in the US. Search this board because there's a good post somewhere about capital capital adequacy ratios which shows who's big and who's small.

 

[foredog]

To be honest most of the people who thnk they've been "stop hunted" have just had a bad trade and got paranoid. They forget the trades where it went within 1 point of the stop before goign back their way.

Most reliable spreadbetters lke IG will not do this as they get their prices from 5 or 6 different banks so it would need all the banks all at one to push price the right way otherwise if one tries to push price down the other 4 would just take ther offers.

 

[AlexGreen]

Yes, Dog is right. Running stops does happen but not that often and the more legit a broker is the less chance it has of happening.

And of course as Dog also points out it's human nature to try and blame something or someone when cash is lost.

 

[Technically Fundamental]

To be honest most of the people who thnk they've been "stop hunted" have just had a bad trade and got paranoid. They forget the trades where it went within 1 point of the stop before goign back their way.

Most reliable spreadbetters lke IG will not do this as they get their prices from 5 or 6 different banks so it would need all the banks all at one to push price the right way otherwise if one tries to push price down the other 4 would just take ther offers.

unless they put in a cost adjusted bid/offer into the market

 

[wombat22]

Thanks guys, I appreciate your feedback

 

[AmateurTradersOnline]

FX brokers are not usually 'brokers' in the traditional sense. So they don't match an independent buyer and seller.

Instead, they'll normally take the opposing position to your trade so if you go long they go short. Which means they have a financial interest of you getting stopped out.

Why do they take a position against you?

Thanks

 

[foredog]

If you are buying the they are selling to you, they are then shortm they can either buy from someone else quickly and maybe lock in 1/2 the spread profit, or they could run the position, hope you're wrong and buy back cheaper later.

 

[AlexGreen]

Why do they take a position against you?

Thanks

Because it's good for their profits. As around 90% of retail traders will lose overtime taking the opposing position to their trades is normally a licence to print money.

Sure, it's not quiet as simple as that but on the whole this is how they operate as well as making plenty of money off the bid-offer spread.

 

[AmateurTradersOnline]

Thanks,

Blog looks really good by the way Foredog, looks like you put some solid hours in. :clap:

 

[Pippy5000]

Because it's good for their profits..

no, it isn't .. It is in their best interest to make you believe that you will succeed. You will lose your money without any assistance from the market maker. Talking about stop hunts and how your broker is out to get you is pure newbie foolishness. I feel silly even replying to this thread, but I need a little good karma thrown my way.

The "brokers" who advertise "no dealing desk" use that slogan as a marketing tool to entice know-nothings into "investing" their money with their company.

The market makers do not employ highly-paid traders who wait for a mathematically remote opportunity to knock you out of your thoroughly insignificant position. YOU will lose your money.. YOU, without any assistance from anyone or anything will lose your money. You have no idea what you're doing and you're doing one of the hardest things in the world. Their work is done when you fund your trading account.

It takes YEARS of staring at tickers and studying and testing to be a successful trader. Even if you find initial success you will lose your money. You quite simply don't have prior knowledge of different market conditions such as trending, range-bound and false breakout markets.. You will have to learn the hard way and that way is to lose your money.

The actual number is greater than 95% and if you persist in thinking that the problem is anyone other than you then you will never be in the 5% who trade successfully in the long term.