Brokers trading against you?

[kagein]

i often hear that market maker brokers are bad because they could trade against you. I dont really understand this, isnt someone always trading against you i.e someones buying whilst your selling?

 

[Rhody Trader]

The implications of a broker trading against a customer is that it could lead to dubious actions (stop running, delayed fills, etc.) on the part of the broker. The ones with integrity just have customer positions offsetting each other and hedge whatever net exposure that leaves.

 

[Directional]

i often hear that market maker brokers are bad because they could trade against you. I dont really understand this, isnt someone always trading against you i.e someones buying whilst your selling?

think it through... a bucketshop/forex firm/Spreadbet shop that makes its own market is taking the other side of your trades. They are the market you deal with, they make the price, if you take the price they make: When you get long, they get short.

So if you win, they lose - this gives them a vested interest in ensuring you dont win - stop gunning, skewed quotes, requotes, wider spreads etc, all can add up to make it very difficult for the unwitting trader to profit.

 

[Pitscum]

i often hear that market maker brokers are bad because they could trade against you. I dont really understand this, isnt someone always trading against you i.e someones buying whilst your selling?

market makers in the capacity you're talking about can be operating in a bit of a grey area. but, dual capacity does go on only too frequently. id advise you having access to several market makers cos one day, when they are having their very own pfm's, at least you will have a choice of dumping on several of them :0

 

[grantx]

Pit,

What's a pfm?

Grant.

 

[atomm]

In unregulated and decentralized spot forex market, the broker is normally the main counterparty to its clients; the interest of the broker is obvious.

In regulated and centralized options market, for example, there are many market makers competing for the best bid / ask price for the traders at the centralized exchange. The broker may or may not be one of the market makers ( other liquidity providers can be hedge funds, banks and traders ).

An ECN has many liquidity providers that take traders' orders, so the broker is less likely trading against its clients. It is more transparent and fair.

The only centralized forex exchange, fxmarketspace, is unfortunately out of bound for most retail forex traders.
Recently I come across an info that one ECN platform is preparing to register to the Securities and Exchange Commission to become a forex exchange. But that may the next few years to come ( cf. The Nasdaq took over 4 years to become an exchange ).
If it really materializes, this may be the good future for the retail forex traders.

 

[Pie Trader]

If you hold an account with a broker, they will normally take the opposite side of the trade to you. Therefore it's in their interest if your stops get hit, so sometimes they may run prices by an extra couple of pips. Have you ever been in the situation that your stop has been hit to the pip, only to see the market move back in the direction you wanted it to in the first place?

What you need when trading forex is to find an ECN. This is a firm who you can open an account with, who will then place your orders directly to the interbank market, so thet are not 'holding' your trades internally. Typically they will take a commission on each trade you place, but compared to using a broker, the costs of trading are minimal. I used to use a broker (CMC Markets) for my trading, but having switched to an ECN (Capital Forex), I am now saving about 80% on the cost of my trades! This is also helped by the fact that the spreads are MUCH lower through an ECN as they are actually giving you the offer and bid rates on the market - not with thei extra bit wacked on top.

Depending on the size of your trades, here are a couple of ECN's for you to check out:

EFX - EFX: Experience Forex Freedom - great for small position taking. minimum deposit $400 for 1:100 leverage. mini lots trading allowed.

Cpital forex - Capital Forex - two different option, lite or pro, depending on your account size and position size.

Only disadvantage of ECN's is that they don't have charts to go with the price action. They are literally an execution platform (at least that is my experience). It's best to open a demo account with a chart provider (I use MT4) and have the two running alongside when trading.

By moving to an ECN you will definately reduce your trading costs, especially helpful if you're still learning forex trading - your account will last a little bit longer!

Hope this helps

 

[Rhody Trader]

If you hold an account with a broker, they will normally take the opposite side of the trade to you. Therefore it's in their interest if your stops get hit, so sometimes they may run prices by an extra couple of pips. Have you ever been in the situation that your stop has been hit to the pip, only to see the market move back in the direction you wanted it to in the first place?

That is not necessarily indicative of your broker running your stops. Anyone who trades long enough is going to have that sort of thing happen, not matter how they trade, including exchange based markets.

This is also helped by the fact that the spreads are MUCH lower through an ECN as they are actually giving you the offer and bid rates on the market - not with thei extra bit wacked on top.

While you CAN certainly see some lower spreads, but to say MUCH lower is a definite overstatement. Spreades of 1 pip on EUR/USD, for example, are common among the non-ECN brokers these days. The ECNs certainly can't get much lower than that, though I have definitely seen zero and even the occassional negative spread from time to time.

 

[shadowninja]

I'm still uncertain if this practice actually works.

Given that most services have low bet possibilities (ie you can bet just 50p/pt), what is the point in stop hunting someone who's going to lose £10? They will just get fed up and leave, with your business gaining £100 of their money. To build a business as successful as IG's, surely you'd need someone who gives you money on a regular business, especially as only a small percentage of people tinker in financial spreadbetting (eg in my wider group of non-internet friends, I only know of 1 other person who spreadbets and introduced me to it all). I know it's not exactly a scientific study but it doesn't make sense as a long-term, successful business plan.

Stop hunting by players in the FX market is another thing (see T2W's article on it).

 

[atomm]

As far as I know, stop-hunting is the market wise activity that big banks / players seek the opportunity to squeeze extra juice from the market, as the condition of price movement and market is favorable ( in real time ). It is a legitimate trading strategy ( against small players ) and widely practiced by big banks in the forex market, irrespective of a retail market maker, an ecn platform or an interbank.

In real time, only if a broker's data feed is widely deviated from other majority liquidity providers / platforms, than it is the broker that does the stop-hunting on its own. Otherwise, that is the market wide stop-hunting.

Correct me if my understanding is wrong. :innocent:

 

[shadowninja]

That's my thinking, although I think you expressed it better than me.

 

[Rhody Trader]

It should also be noted that stop hunting is not exclusively of the realm of forex trading. People have been griping about it happening among floor traders on the exchanges forever. Any time market makers know of (or have an idea of) a level where a load of stops rest (and this isn't just little pluggers like us) they have a motivation to run them. Why? Because the market makers earn their daily bread from transaction flow. If they trip those stops, they increase transaction flow, which is also why it doesn't behoove the exchanges to do anything about it either.

 

[_coda]

As far as I know, stop-hunting is the market wise activity that big banks / players seek the opportunity to squeeze extra juice from the market, as the condition of price movement and market is favorable ( in real time ). It is a legitimate trading strategy ( against small players ) and widely practiced by big banks in the forex market, irrespective of a retail market maker, an ecn platform or an interbank.

In real time, only if a broker's data feed is widely deviated from other majority liquidity providers / platforms, than it is the broker that does the stop-hunting on its own. Otherwise, that is the market wide stop-hunting.

Correct me if my understanding is wrong. :innocent:

Probably the reason I see the advice not to place stops in the obvious positions. If it is possible to predict where a large number of stops are concentrated, this could be the basis of a trading strategy. Maybe it already is and I just haven't come across it yet.

Something to think about when I'm planning my trades. What is not so clear to me is what a non-obvious stop is that don't equal or exceed ATR.

 

[shadowninja]

The way I see it is that it's just another element of the environment. Live with it or don't trade.

Probably the reason I see the advice not to place stops in the obvious positions. If it is possible to predict where a large number of stops are concentrated, this could be the basis of a trading strategy. Maybe it already is and I just haven't come across it yet.

Some people do.

Something to think about when I'm planning my trades. What is not so clear to me is what a non-obvious stop is that don't equal or exceed ATR.

No strategy is perfect!

 

[atomm]

It should also be noted that stop hunting is not exclusively of the realm of forex trading. People have been griping about it happening among floor traders on the exchanges forever. Any time market makers know of (or have an idea of) a level where a load of stops rest (and this isn't just little pluggers like us) they have a motivation to run them. Why? Because the market makers earn their daily bread from transaction flow. If they trip those stops, they increase transaction flow, which is also why it doesn't behoove the exchanges to do anything about it either.

Agree. Stock market is more manipulative than forex market.

If I am a big player / market maker and have manipulative and influencing power on the stock price, I can just do that when the situation is ripe for it.

Example, at $1.00 I sold a huge bundle of stock A; and I can see there are many stoploss order placed at $0.95. I may play my trick to lower that price down to hit it, the stoploss price placed by those small players becomes my short covering price; and I bank in $0.05 gross profit per stock ( excluding commission and averaging price ). This may happen in just minutes, what an easy money for me!

 

[$_mercy_for_animals]

Hi, I'm a beginner and so far, I have only used one practice trading site, bullbearings.co.uk I placed three trades for a total profit of 43GBP. That was by accident, I meant to press the USD/AUD pair! I'm nowhere near ready to trade with real money.

However, by the time I am ready to trade for real, I want to have a clear risk management plan in place, and, it seems to me that having an attitude &/or plan on how to approach 'the problem' of brokers/market makers (& is there any difference between those two titles?) is just part of good risk management.

So I'm hoping to find some feedback here on what I have found out so far re the problem of brokers trading against (their customer) traders.

1.) One attitude or approach I read about in another forum, was, to just accept brokers trading against you as a fact of life. The person who wrote that said that all brokers are necessarily the same in that regard and so 'the solution' was to find ways to live with it! He didn't specify what those ways were.

So far, all I can think of re that is to find ways to lessen the impact upon the broker of my winning trades, so that he doesn't really feel it! So, maybe having multiple brokers would be one way to do that?

2.) Another approach is to keep looking till I do actually find (via some as yet unknown to me method) a good, honest broker (or something approaching that). I've looked at quite a few broker review sites and it looks like some people might really like a broker while others say that same broker is dreadful! It's a bit confusing. Non-dealing desks seems to be regarded as best, yet it seems some brokers say they are non-dealing desk even though they really are dealing desks!

3.) A further (possible) solution type I found on my searches is to find a broker who has (a self-imposed) no choice but to be honest edge, to offer potential customers.
FxSpyder claims that this IS a real 'solution' to the problem of brokers trading against you!

They claim that they offer, to brokers, "a trading platform that resides on an independent server" which presumably thereby gives the broker a greater reputation of integrity. I presume they are saying that a new class of high integrity brokers will emerge and being one of those brokers will, in the long run, help participating brokers (in some unspecified way ... presumably ' a competitive edge' &/or being looked upon kindly by current or future regulators) more than simply trading against the brokers own clients will do!

So far, according to FxSpyder's website, they only have Finodds on board (even though the trading platform is free to the broker, they say. I'm not sure how FXSpyder would make it's profit?) and Oanda will probably be on board by the end of this month, they say.

FxSpyder says, "Standing orders are not seen by the dealer...Why is this important to you? Advanced knowledge of a trader’s intentions provides the dealer with a decided market advantage. Naturally, that advantage disappears when orders are processed through FxSpyder. All orders, market or standing, once posted to FxSpyder’s resident server remain in the background until the specified price is reached. The order is then automatically transmitted to the dealer’s server via the broker’s Application Program Interface (API) for immediate execution"...and "What does this mean to you, the retail trader? Trading through Fxspyder, you can trade with the confidence that your dealer not only cannot use the advanced knowledge of your standing orders to trade against, but, more importantly, that your dealer abides by only the highest standards of fair and equitable trading."

Any feedback on any of these 3 ways, outlined above, is much appreciated...as is any other ways anyone can suggest to deal with this issue. Thanks.

 

[Pie Trader]

Hi, I'm a beginner and so far, I have only used one practice trading site, bullbearings.co.uk I placed three trades for a total profit of 43GBP. That was by accident, I meant to press the USD/AUD pair! I'm nowhere near ready to trade with real money.

Ok, a bit of a lesson in differences between brokers. There are two types of broker firms; those that are Market Makers, and those that are ECN's. A Market Maker gets prices from the interbank market (where all trades are ultimately placed) and then decides what prices they will offer the client (you). They are in effect taking your order themselves. It is up to them if they actually pass it onto the interbank market or not. They are at liberty to widen spreads as much as they like (and they DO, especially around news releases), which can cause stops to get hit, when in actual fact the price never came close.

An ECN on the other hand acts as a conduit between the client and the interbank market. When you place orders you are buying or selling the market at prices offered by banks, not by your broker. You can normally tell which brokers are ECN's as they will charge a commission for each trade placed. This is how they make their money, instead of giving you artificially widened spreads like Market Makers (who are making off the spread.) This means that they don't have an interest in widening spreads to take out stop losses, unlike Market Makers who may have taken up the opposite position to yourself instead of passing the order through. Over time, you will save a lot of money by using an ECN, instead of paying for wider spreads through a Market Maker.

Personally, if you're just starting out I'd recommend someone like MB Trading. I think you can open an account with them with only $400. Their charts suck though, so I'd use a demo from an MT4 provider (possibly Ikon Royal), which is free, and I think for an unlimited time (if not you can just keep re-opening a new demo account). MT4 (metatrader4), charts are quite versatile and easy to work with. Don't just go on my say so though. Do you own research. Look at Forex Trading System with Forex Signals and Broker Reviews for reviews on MB Trading as well as all the other forex brokers out there. In my 4 years of forex trading, I'd say that they're one of the best options out there.

Just my opinion.

Pie

 

[mp6140]

Personally, if you're just starting out I'd recommend someone like MB Trading. I think you can open an account with them with only $400. Their charts suck though, so I'd use a demo from an MT4 provider (possibly Ikon Royal), which is free, and I think for an unlimited time (if not you can just keep re-opening a new demo account). MT4 (metatrader4), charts are quite versatile and easy to work with. Don't just go on my say so though. Do you own research. Look at Forex Trading System with Forex Signals and Broker Reviews for reviews on MB Trading as well as all the other forex brokers out there. In my 4 years of forex trading, I'd say that they're one of the best options out there.

Just my opinion.

Pie

i totally agree with your concept of using an ECN with demo MT4 charts, which ive spoken of a number of times and do myself, BUT using a "broker" (in the USA) or a "spread better" (UK) means you already get the free charts and literally thousands of indicators and automated trading packages.

while what you say about spread increases is true, it applies only to moments of rapidly increasing volitility or momentum, usually driven by news, and is actually of no bother to those trading longer timeframes than short flips, or trying to make money on the news !

for those who are trading the 30 min, or H1 or H4, its of NO importance, except for the drawdowns that will happen from the abnormally large ups and downs intraday which "mercy" should be doing !

While MUCH is said of spread betters and brokers trading against you, it would indeed be a foolish one who obviously cheated you as theres just TOO much information available if they dont hit the "correct" prices ! the only one i have seen do this is INTERBANKFX, which i LOUDLY DISCOURAGE traders from using !

all brokers and 'betters are capable of hitting stops and clusters of stops as stated, and often do so which is one of the main reasons i never us stop losses (a procedure reserved only for those WITH EXPERIENCE, AND NOT ADVISED FOR NEWBS) but in a properly executed trade, with a decent stop loss, this should rarely, if ever, be a problem !

at one time i joined right in with the "BAD BROKERS !" crowd, but ive given it a lot of thought over time, and for the free charting, ability to carry multiple positions, ability to be both long and short (which you cant do with an ECN unless you have multiple accounts), ive decided theyre just not that evil !

the way they make their money, aside from the spread which probably only pays for expenses, is to REVERSE the currency a few times in a day, causing the weaker traders to be "shaken out" of the trade. The 'betters then make money on their shorts, and have also dropped the market down to where they get CHEAP shares to use for the forthcoming runup ! (naturally, reverse everything if its a run DOWN !)

enjoy and trade well

mp

 

[westonweston]

I have no doubt that I have been conned, 97% of my trading went the opposite way, so its shows that it was rigged against me. Its a dishonest robbery regulated by authorities and bankers, this I find very disgusting.
Is city index ECN ? ???

the only way they can make money is from people blood .

 

[lancenicolase]

They are not ECN.
But if 97% of your trades went against you then it's not your broker's fault but your own... Broker is there to only give you the prices (and a lot has changed since this thread was started and some brokers always have fixed spreads).