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| Stop Hunting Forex Brokers Myth |
By:
Danielle Franklin |
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The market turns against you and the desperate need to blame someone but yourself arise. Has your broker forcefully removed you from the game by moving the market price to the level of your stop-loss? Or is it just a myth created by the paranoid traders? Is there stop hunting, and if so, how to avoid it?
What is stop-loss hunting? Basically, stop-loss hunting is all about causing the market price to reach your stop-loss order and push you out of the market with a loss.
In other words, the big financial institutions have to intentionally buy/sell a large amount of currency which changes the market price accordingly and hits the trader's stop-loss levels and kicks the trader out. Meanwhile, the financial institutions gain from the losses, by taking the other side of the trades and profit from the short-term move.
The story about hunting stops is familiar to every trader. However, most traders who have been "stop hunted" simply had a bad trading day, got a paranoid idea that the broker is "spying" on them and force out the positions placed.
Technically speaking, it is true that your forex broker know where your stop-loss are placed via the trading platform. Once you place a stop-loss order, the broker will be aware of it. However, it is rather unprofitable for forex broker to try to take out your orders.
Why? Well, although it is true that every forex broker offer different spreads, a broker probably wouldn't risk moving the prices just to force your orders out. Besides, your losses are not profitable for the broker. A reputable forex broker want you in the game, because a profitable trader can afford larger lot sizes and therefore make more commissions for the broker of the spread.
Forex forum posts and blogs may give you an impression that stop-hunting is a common practice among brokers. However, in most cases, the upset traders simply blame (maybe even unconsciously) stop hunting for their losses because it is the convenient way to find someone responsible for their losses. No one likes to realize their own mistakes, right?
Yes, it is true that a stop hunting forex broker may profit in the short term, however in the long run it is destructible. A forex broker with bad reputation will quickly lose the existing and potential trades. Besides, it can also cause a potential legal problem. Overall, it is highly unworthy for forex broker to stop hunt in the first place.
In case you are still convinced that your forex broker is guilty of stop-hunting, here are some tips of dealing with the situation:
1. Change the broker! The easiest way to get away from stop-hunting issue is to withdraw your money and move on to another broker. If you cannot rely on your own broker to deal with your orders, then how can you possibly continue trading with it?
2. To make sure that your broker is really involved in stop-hunting, it might be a good idea to open another trading account with another broker and compare their lows and highs.
3. Confront your forex broker about your suspicions by writing an email and attaching some evidence to it (for example, the screenshots of other broker's highs and lows).
4. Use mental stops instead of placing an stop order on the platform. This advice is only or advanced traders. You have to know the risks involved with "mental" stops! Make up your mind (let's say, stop whenever a certain price is reached) and follow your plan. This is basically the full proof! Your forex broker won't know where the stop is and therefore wouldn't try to hunt it.
About the author:
Forex Brokers Reviews - Forex brokers reviews and rating, comprehensive forex tutorials and articles, latest forex news and forex blog. Top Forex Brokers - Top forex brokers reviews, latest bonuses and promotions, free forex tutorial and more. Forex Forum - All Forex Secrets In One Place! |
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