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Forex Broker Shocking Frauds

Read the story of Richard Samuels, a post office mailman with a head injury and how he made a fortune with these Neutrino Forex Signals. Learn this powerful Fibonacci Retracement secret FREE that pulls 500+ pips per trade. Read the FRWC shocking 40 page PDF insider report that reveals all about the forex robots and the potential of automated trading systems. Knowing your broker intimately is very important for you as most of the time the broker might be trading against you without you ever realizing it. Forex is an over the counter unregulated market. This means that there is no central agency like that in the futures markets that can function as a clearing house.

This unregulated nature of the forex market means that most brokers are free to quote currency rates of their own. What many brokers do is add 1-2 pips to the interbank rate that they get. In times of volatility, you will find that the spreads might suddenly widen. All these are forex broker games that you need to be aware of if you want to seriously dabble in the game of forex trading.

Almost all brokers now tell their clients that no commission will be charged like that in the stock trading. What they don’t tell you is that commission is being charged in the hidden shape of spreads. 2-3 pips bid/ask spread is your trading cost and the broker’s profit.

Now, if you are new to forex trading chances are that you will lose 99% of the time. You lose, your broker wins as the broker has to provide liquidity to the clients and most of the time cannot immediately offset the position in the interbank market as the size of the most transactions are usually small. What this means is that most of the time, your broker is trading against you. The more you lose, the more your broker wins.

Add leverage to this. Your broker will entice you to use a high level of leverage by saying that it will increase your profits. You are new, you don’t know how to use leverage. You end up losing. The more you lose, the more your broker will make.

These are all games that your broker is continuously playing with you. Your forex broker can turn your winning trade into a losing trade by using blip or a sudden spike in the price feed. This is also known as stop hunting. Stop hunting is what many brokers continuously do. You suddenly find that your stop loss order has been triggered and your trade is closed. What you don’t know is that the spike in the price action was artificially created by the broker. So my friend, if you are really serious about trading forex than know your broker first before you start dabbling in the game of trading forex.

Know Forex Brokers

The emergence of sophisticated online forex brokers made forex trading feasible for private individuals like you and me. In the past, the forex market was only open to the wealthy individuals and institutional investors. Compare forex brokers. Know these forex broker games. Understand forex charts.

Many forex brokers tend to entice new trades by offering high leveraged margin accounts. Now anyone can open a forex trading account with a retail forex broker and trade currencies with little money upfront.

There are basically two types of forex brokers: 1) Market Makers and 2) Electronic Communications Networks (ECNs). Market makers set the bid and the ask prices themselves.

Market making is a lucrative business for banks and brokers and forms the backbone of market liquidity. ECNs consolidate the various bids and ask prices from the different market makers and other participants connected to their platforms and display the best available prices.

Market makers are essentially providing liquidity and inviting other qualified parties like banks, hedge funds, corporations and retail investors to deal with them by quoting the bid and ask prices on the screens of electronic brokering platforms or through telephone calls.

Some market makers establish credit lines with banks that trade on the interbank market. Market makers must always be prepared to buy or sell from other market participants. They also access the Electronic Brokering Platforms like the EBS and the Reuters for pricing.

The bid/ask spread is the difference between the price at which the market maker will buy (bid) and the price at which the market maker will sell at (ask) from the customer interested in foreign exchange. Market makers make profit from the difference between the bid/ask spread.

During the period of high liquidity in which there is a great deal of trading activity, bid/ask spreads of the actively traded currency pairs are usually kept quite narrow like 1-4 pips.

However, when the market is quiet with very little trading going on for example prior to New York close on Fridays or during the news releases, bid/ask spread may widen sometime by a huge margin. Market makers widen the spread in order to protect themselves against carrying additional risks.

ECNs are highly popular in stock trading as well as futures trading. ECNs are electronic trading platforms that match the buy and sell orders automatically at the specific prices.

An ECN broker gets its currency pricing from several liquidity providers such as banks, market makers or other traders connected to the system. The order is routed to the best available bid or ask price for execution in the system.

ECN brokers usually charge a small commission. However, you can usually get tighter spreads on many currency pairs due to the large liquidity pool available with the ECNs. Risk of trade manipulation is also minimized when using a good ECN broker as compared to the brokers that operate dealing desks.

What Is Stop Hunting?

Understand the forex market.The forex broker acting as the market maker has to absorb all the buy/sell orders if there is so much market demand to buy above a resistance level or sell below the support. There must be a seller for each buyer and a buyer for each seller. However, you must know that the market maker is not a fool. Get good forex training.

Develop your own forex trading system.When the new traders learn technical analysis, they tend to most eagerly follow trade recommendations based on certain chart patterns recommended in the books. Most of the retail traders being inexperienced or new like to trade the breakouts!

However, the seasoned traders do exactly the opposite of what the crowd is expected to do. They prefer to fade breakouts. Most of the successful traders are contrarian in their trading approach.

Most of the breakouts fail because the institutional or the seasoned traders take advantage of the crowd psychology of the retail or inexperienced traders and win at their expense. For every loser, there is a winner. Trading is a zero sum game.

Let’s understand the tricks that can be played by the institutional dealers and traders. Their game plan is simple. Market markets mostly the forex dealers and brokers can fade breakouts. They will make money from the majority of the crowd who thinks that prices will rally happily after an upside breakout. Similarly, it will decline dangerously after a downside breakout.

Market makers have to take the opposite side of your trade whether you like it or not. They are the pricing counterparties to the retail traders like you and me. Suppose most of the retail traders have placed their stop entry order at a certain price above the resistance level.

Market makers reach into their pockets. They spend some of their money to bid up the price to that level where most of the stop entry levels have been placed. Now they can sell to most of the traders who are desperate to buy. Thus making some decent profits from this trick played on inexperienced traders.

Market makers get the chance to close their long positions by selling to the retail crowd. Now they begin to short. They try to overwhelm the buying crowd. This pushes the prices down, below the breakout level. This is the price level where many stop loss orders have been placed by the retail traders who wanted to trade the upside breakout.

Market makers happily offload their short positions now by buying from the retail traders who are selling to close their losing breakout trades. Market makers have the information of their customer’s orders from their order book. Thus a potential conflict of interest exists and retail traders must know how to protect themselves.

Market makers often go on the stop hunting spree. False breakouts maybe the consequence of that! Retail crowd thinks that the false breakout is due to the sudden turning of the market. These false breakouts are most likely the direct result of the games market makers play.