Can Forex Brokers Manipulate Price?
There has always been a contentious debate within the currency world. Trading losers allege that their brokers stopped them out and brought about significant losses. Winning traders claim that the stop outs have no effect on them and that losers just aren’t profitable traders. How much of this is actually true? Let’s investigate whether forex brokers may genuinely influence prices in an attempt to thwart traders.
Forex brokers are able to and frequently do this, manipulating prices to push traders’ stop losses. This is more typical among unlicensed, offshore B-Book brokers. I would always prefer to trade with a registered ECN or STP broker since they cannot manipulate currency pair pricing, protecting your prices and spreads.
Do forex brokers manipulate the market?
The simple fact is that some forex brokers do manipulate prices, to put it briefly. Though not all brokers still engage in this practice, there are those who do. Don’t give up hope, though. It occurs more frequently with B-book brokers who are eager to defraud traders and who are frequently unregulated.
Forex traders were defrauded by brokers frequently in the early days of online forex trading. This is due to the fact that most brokers lacked regulation and just traded against their clients.
With between 80 and 90 percent of forex traders continuously losing money,, if a broker just traded in the opposite direction, it would be quite easy for them to win in the markets. You would become extremely profitable if you executed all of the trades that a losing trader avoided.
What if you could trigger their stop loss even though the price never actually reached it? Your competitive edge would grow much more!
This is the basic rationale behind some brokers’ pricing manipulation. We’ll examine the two categories of forex brokers.
What are the types of forex broker?
Forex ECN/STP Brokers
An ECN/STP broker is usually the most secure one to use for trading from my experience.
Since ECN/STP brokers don’t trade against their clients, they are unable to manipulate prices. To other traders on their order book, they merely pass the order on.
These brokers typically have the finest ratings in forums and online communities and are heavily regulated. They are also the cheapest to trade with due to their low spreads.
You receive the same price from their liquidity providers when you trade with an ECN broker. Interbank pricing and liquidity are advantageous to you, and you only have to pay a little commission for each deal.
This, along with the assurance that you won’t be conned, can lead to substantially better tradin conditions.
B-book brokers are the kind of forex traders who might try to manipulate prices.
These brokers have a variety of strategies to manipulate prices in their favor and can trade against your positions.
These online forex brokers use a “price gun” as one method of price manipulation. Here, they just maintain an artificially high or low price in order to set off your stop loss. They will then transfer their trading positions back into their account and close them out for a tidy little profit after the trade is closed.
Another reason you should avoid using these brokers is because they are frequently unlicensed and located offshore.
By altering spreads and depth of market (DOM), B-book brokers can also manipulate prices by trapping traders in losing positions before profitably exiting the deals.
Many of these brokers can be easily identified without ever having to sign up or deal with pricing fluctuations. Typically, they will be:
- They are not governed by any authorities
- Located offshore
- Have a minimal web presence
- Give traders very high leverage
- Push cryptocurrency withdrawals and deposits
- Offer just MetaTrader 4 as a platform
There is a strong possibility that the broker is a B-book if they check off all of these boxes.
How do I know if my broker is manipulating prices?
It can be challenging to determine whether a forex broker is manipulating prices because of how unpredictable and liquid the forex market is. However, there are several telltale indications.
The following is probably what you will see if you choose to register an account with one of these brokers:
Slippage is annother quick way to try and determine if your forex broker is rigging pricing or just has poor trading circumstances is to look at their past performance.
Slippage occurs when the price movement at entry and departure are different. You will have experienced slippage, for instance, if you begin a long trade at 1.2500 and set a stop loss below the low, then the price quickly dips to 1.2490 before climbing straight back up.
Most traders would exit the trade as soon as it reaches their stop loss and simply take the loss on the chin, thus slippage is typically not as severe as this.
Any slippage will cost you serious money over time and produce drastically different trading results if you’re paying a broker $7 per lot. Swing traders are less affected by slippage unless there is a major impact news event, however lower time frame traders or scalpers are more affected because they rely on every pip.
Stop hunts are one of the most typical tactics used by shady forex brokers. In essence, they are fully aware of both the location of your stop loss and the anticipated size of your loss. They may easily get price to strike that area (falsely, most of the time) in order to profit from all of the traders’ losses at once if enough traders in their book have stop losses there.
The issue with stop hunts is that they can be difficult to identify because they frequently resemble pushes by banks for better pricing or larger liquidity levels.
The best approach to actually know is to use data from another broker’s trading platform, such as TradingView. If your MT4 pricing and the pricing on TradingView match, your broker can stop pursuing you because you know it wasn’t them.
Huge Price Increases
Brokers can also manipulate prices by creating sharp price increases. Even when the market hasn’t changed all that much, traders are forced to exit their positions in this situation because abrupt price increases cause their stop loss orders to be triggered.
Since it enables brokers to swiftly boost their daily profitability at a little risk, it is really fairly usual for them to manipulate highly volatile markets like Forex.
How to prevent brokers from manipulating prices?
It’s quite challenging to keep safe once you’re working with a broker that is manipulating rates. Therefore, choosing a broker that is regulated and operates with no dealing desk is one of the greatest methods to ensure your safety.
To make sure you’re working with a reliable business, there are some qualities you should look for in a forex broker.
- Widely regulated
- Phone assistance and physical address
- Offices spread across several places
- Not located offshore
- Processing fiat money transactions
- Excellent online ECN/STP reputation
- Offering realistic maximum leverage
- Various trading platform options (Not just MT4)
These are the majority of the essential characteristics of a trustworthy and licensed forex broker. As you can see, many of them cannot be manipulated by forex brokers.
In addition to these qualities, a broker is not a suitable choice if they try to persuade you to open an account with them or make it difficult for you to quit when the contract expires.
Always ensure extensive investigation and satisfaction with the broker’s terms and conditions. If not, avoid creating an account.
Conclusion: do forex brokers manipulate prices to scam traders?
In conclusion, certain forex brokers deceive investors by manipulating their pricing. It’s also a reasonably typical practice. However, there are a few straightforward guidelines for detecting shady brokers and remaining safe. You should also make sure your broker of choice is reliable before you sign a contract with them. Try and keep your business with ECN/STP brokers that are properly regulated and handle fiat currency transactions.
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