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 You have probably heard of how Forex brokers or rather market makers manipulate your trades in their favour. Some accusations against forex brokers are as follows:
- They take your opposite position.
If you enter a short trade they enter a long trade the same size as your position. Your loss is therefore their profit. Since they have a stake in the trade they will do their best to exit the trade profitably which simply means they will do their best to make sure you lose the trade.
- They make your trades disappear!
You enter a trade and it shows open profit but then suddenly your trade vanishes from the open trades list (or from your terminal in case of MetaTrader) as if it didn't exist in first place.
- They commit stop hunting.
You have placed a stop loss for your trade. The price suddenly jumps toward the stop loss and hits it right before getting back to where it was. This could especially happen in a low volume market condition.
- They do not honour your stop loss.
You place a stop loss. The market reaches that level but they do not close your trade. The market trends against you and still nothing happens. You either need to call them and ask about the situation or close the trade at a larger loss than you expected. You may even end up getting a margin call.
- They do not honour your take profit.
The price reaches your take profit level but nothing happens. The price retraces and hits your stop loss.
- They do not accept your trade modification request.
You decide to delete a pending order or modify the settings of an open trade but your request does not go through. The pending order gets filled against your will or the open trade continues with the old settings which results in more loss or less profit than what you expected.
- They widen the spread to the point that you lose money (a sudden slippage).
For example you enter a short trade with a 10 pip stop loss. The broker accepts the trade but right after approving the trade request spread increases to more than 10 pips which results in hitting your stop loss. You lose the trade almost immediately after placing it.
These are among many problems that traders accuse Forex brokers of. Some traders also criticize the quality of their brokers' customer service and also the time they spend to open accounts, wire the money, or close accounts. You may also read a fantastic book written by Agustin Silvani titled "Beat the Forex Dealer" which explains broker-trader problems in detail.
Are these Accusations True?
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Keep in mind that Forex is a risky market. Anybody could get wiped out in this market in a matter hours or even minutes. Market makers or rather forex brokers are no exception. They'll do their best to protect themselves. On the other hand Forex is one of the least regulated markets in the world. It is also an Over the Counter (OTC) market which gives a great degree of freedom to the market maker. The combination of riskiness of this market and absence or lack of regulations give brokers the opportunity to build a shield against losses. This shield could sometimes act against their customers. Remember that customers' or rather retail traders' gains could actually be broker's losses in some cases. |
You as the trader are disarmed against your broker. If a broker decides to fight you then the odds that you could survive is slim to none.
In general, we could say that some brokers could commit some of those villain activities. Nonetheless, those brokers who intend to stay in the market for a longer time could be nicer to their customers and act with more integrity.
What Can You Do to Protect Yourself?
 The first and most important thing to do is to pick the right broker. Do some research before opening an account with a broker. Some questions you may ask are as follows.
- Is the broker regulated?
Many countries nowadays have established some legislations to govern the activities of Forex brokers. There are also some self-regulatory bodies in many countries that support retail traders. If your broker belongs to one of these countries then make sure they are also a member of such organizations. For example if your broker is located in the United States of America make sure they are a member of NFA or National Futures Association.
- Is the broker financially stable?
Since you transfer your money to their account you need to make sure your money is safe. A financially stable broker is less likely to make your money disappear. Click here to know more about the financial status of some US forex brokers.
- Is it easy to contact the broker's customer service?
See if they offer a 24 hour phone service. Remember that Forex is open 24 hours a day for 5 days of the week. You may also drop them an email to see how quickly they reply back. If they offer online chat on their website try it in different times of the day and different days of the week to see if they are always online and if they respond back quickly.
- How can you access their dealing desk?
There are times that you may encounter technical difficulties with your internet connection. In such cases you may need to pick up the phone and contact somebody to help you with your open trades or take care of new orders. Make sure the broker offers alternative contact methods other than trading platform. This could be a great help in emergency cases.
- What does other say about them?
Visit forums. Read blogs and reviews. See what others especially their customers say about them. Forums and blogs are not the most reliable sources to know a broker but at least you may get a sense of how their customers feel about them.
Other than those important questions, depending on your trading style you may also need to know about your broker's behaviour at the time of news releases, their slippage policy, their requote policy, their server connection reliability and more.
Don't be shy! Talk to them before transferring your money. If you have special requests make sure to ask the broker about them. They may be able to accommodate your requests to the full extent. Open an account with a broker only if you feel comfortable with them. If you do not feel comfortable with your broker then your trading experience could hardly be a good one.
Other than picking the right broker there are some practices that could protect you against weird trade incidents. This list is not a "must-do" list. You might find strategies that do not follow any of these suggestions and yet make money. For such strategies pick a broker that you trust.
- Avoid trading in low volume market. If the market is not active then the best thing to do is to stay away from it. For example between the close of the US market and the open of the Asian markets.
- Avoid trading in illiquid market situations. For example the market could be illiquid when it is not very active. It is also extremely illiquid at the time of major news releases.
- Do not place stop losses that are very near to the open price of the trade.
- Preferably avoid news trading and scalping.
It is "Me" not the Broker!
 We of course love to put the blame on somebody else. This is a human reaction to unwanted situations. Many traders try to find a way to justify their losses. If you are an experienced trader you know what I mean. You know that we sometimes lose just because we have not predicted the market behaviour correctly. We are not fortune-tellers or at least the majority of Forex traders do not fall into this category. We use different techniques to forecast the market movements. No matter what we do these forecasts are not always correct. We lose money most of the time because of wrong predictions not because of the broker or anything else.
Let me give you an example. I was testing a trading system this morning. It entered a short trade on GBP/USD. The price moved against the trade and hit the stop loss a few minutes before changing direction and reaching my take profit level. Does it look familiar? If it was a live environment I would have said the villain broker's stop-hunting-machine was at work again. Of course, the uncontrolled demo account says something else (see image below).
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