Resolved Question
Indeed, is there market manipulation?
I have read in some forums that brokers with fixed spreads are able to spike the price to any direction so your stops can be touched; especially if you set a physical stop loss. But in the e-book that my broker provided, they assure this can not be, and you can trade without market manipulation. So my friends, what is the truth??
over 2 years ago
Best Answer - Chosen by Voters
I find this subject fascinating, and I appreciate the comments of Pips_Dont_Lie, who I follow on Twitter.
I agree with the premise of his answer, but also believe that at times it does happen. However, I think that most FX traders have nothing to worry about for many years or until there trades are risking 5 or 6 figures.
We must remember that your broker and the banks behind them do know what positions are out there. They also recognize 'herd mentality" which means at certain areas there could be hundreds if not thousands of positions with stop losses in the same location. Banks will and do at times put enough liquidity into a market to take those positions prior to a move in the opposite direction.
Market Makers exist in all markets and they do, by their ability to bring very large $$ into a market make it move in a certain direction.
Let me show you a very good example, and with a small story I think you can answer for yourself if a market can be moved for the benefit of a broker or banker.
http://www.twitpic.com/ix7d5 (Please copy and paste this link) Here is a currency pair on the 5 min chart. This is an unbiased chart without any bid/ask bias. This is the true level of the movement of the pair. As you can see this is in the evening with little action and very low volume.
Low and behold you have a tremendous spike down to a specific price target and then it returned back to the trend that it was in. Why would it do that?
What if I told you that at that location there were 3 different traders who had stops at the same point? One was taken out and the other 2 were not. They were using different brokers and we know that brokers can and do have different spreads, and that different brokers use different banks for clearing their trades.
So it IS possible that you could have the same stop as someone else and you get taken out and they do not.
So back to the question as to why was the one taken out... The position that was taken out was a position in excess of $100,000, as a matter of fact, a LOT more.
I truly believe that a Market Maker took advantage of the extremely low volume, and pushed the currency pair down to take out this position.
Take this for what it is worth. That being said, I still feel that brokers are not going to take out your $500-$1000 position. Those get taken out in the normal process when inappropriate stops are used, or trends have changed.
There are ways and strategy's for traders of that volume. They can stay under the radar with a little planning, and they can also hedge there positions for added insurance.
I can be followed on Twitter @TraderCisco.
over 2 years ago
Answers (1)
The "my broker took me out" concept is widely shared by newbie traders. The reality is, what is a stop-loss? 20-pips? 50-pips? And from what point... your entry or a known (highly probability) S&R price? The broker will not hunt "your" stops. I have traded with 10-pip stop-losses in a strategy now for several years, with three different brokers, and I can only think of one time wherein I thought something was funny. And I am sure that was just a market price not a broker manipulated reality. But, what I always recommend to traders, open up a couple of demo accounts, open some short term charts with each one (1-minute is fine) and let them run. When you suspect a broker has "chased your stop" and you see an exceptional move in price, validate that it is or is not occurring on all your charts with different broker feeds.I also know the more reputable brokers will (typically) replace any money lost that occurs in such a spike that is proven to be ONLY in their feed and not in general market pricing. You have to remember, this is all bits and bytes, and between the data feed, routers, your ISP, your computer, there can be burps now and then which are NOT the broker's evil efforts to trade against you.Lastly, remember, most brokers have thousands upon thousands of traders, many of which are trading at once. To conceptualize the broker or their desk seeing your stop is fairly unlikely... and with different strategies and models being traded, different intra-day time periods, you have a variety of stop-losses at different distances from major S&R points. Bottom line, put your focus on learning your strategy, focusing on the wins, and not allow your trading ego to convince you that a loss is some external party manipulating the market.Naturally, I am not suggesting there might not be some brokers who are devious ... we know this to be true, too. Which is why you have to select a main stream broker (especially for newer traders) who has a reputation to protect and has a volume of traders that would prevent such obvious manipulation. Again, it's easy to spot by looking at multiple feeds and comparing. I would also ask the broker's support rep about refunding any loses if you can prove their spike was ONLY in their feed, just to test the water. If they are resistent, then you might consider another broker.Good luck bagging the pipparoos!:)Steve
over 2 years ago
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