There has been a controversial argument in the forex community for as long as I can remember. Losing traders claiming that their brokers have stopped them out and caused huge losses. Winning traders not seeming to be effected by the stop outs, claiming the losers just aren’t profitable traders. Well, how much truth is there in this? Let’s find out if forex brokers can actually manipulate prices to stop traders out…
Forex brokers can and do manipulate prices to cause traders stop losses to be triggered. This is more common in offshore/unregulated B-Book brokers. To avoid your prices/spreads being manipulated, trade with a regulated ECN/STP broker as they cannot manipulate pricing of currency pairs.
Do Forex Brokers Manipulate Prices?
The long and short of it is simply that some forex brokers do manipulate prices. Don’t lose hope though as it’s not all brokers – there are only a select type of broker that are still doing this practice. It is more common in B-book brokers who are keen to scam traders and these brokers are usually not regulated.
In the earlier days of trading forex online, there were traders being scammed by brokers left right and center. This is because the majority of brokers were unregulated and simply trading against their traders.
With 80-90% of forex traders consistently losing money in the markets, it would be a very simple win for a broker if they simply traded the other direction. If you took all of the opposite trades of an unprofitable trader, you would end up being incredibly profitable. What if you could also get their stop loss hit, even when price never touched that level? Your edge would increase even further!
That is the simple premise of why some brokers will manipulate prices. Let’s look at the two types of forex brokers…
ECN/STP Forex Brokers
The safest broker you can be trading with is an ECN/STP broker. ECN/STP brokers cannot manipulate any prices as they don’t trade against their clients. They simply pass the order to other traders on their order book.
These brokers are usually highly regulated and have the best reputations within the forums and online communities. Not only that, they’re the cheapest to trade with as they have very small spreads.
When you trade with an ECN broker, you get the same price they get from their liquidity providers. You get to benefit from interbank liquidity and pricing, whilst just paying a small commission on each trade.
This, plus the peace of mind of knowing you aren’t getting scammed, usually results in much more profit and accurate results for traders. Here is a list of the highest rated ECN brokers right now.
B-Book Forex Brokers
The type of forex brokers who could potentially manipulate prices, are known as B-book brokers. These types of brokers can trade against your positions and they have various ways of manipulating price in their favour.
One way that these online forex brokers manipulate price is by using a “price gun”. This is where they simply hold price artificially high or low, just to trigger your stop loss. Once the position is closed, they will then take their trading positions back into their account and close them out for a neat little profit.
These brokers are typically unregulated and usually based offshore, which is another reason you should avoid them at all costs.
B-book brokers can also manipulate price by changing spreads and depth of market (DOM) to lock traders into losing positions and then exit the trades for a tidy profit.
Many of these brokers are easy to spot without ever needing to sign up and experience the fluctuation in prices. They will usually be:
- Unregulated by any governing bodies
- Offshore based
- Have a limited online presence
- Offer 1:500/1:1000+ leverage to traders
- Accept $10 deposits
- Push cryptocurrency deposits and withdrawals
- Only offer MetaTrader 4 as a platform choice
If the broker ticks all of these boxes, there is a good chance that they’re a B-book.
What Are The Signs Of Your Forex Broker Manipulating Prices?
Due to how liquid and volatile the forex market is, it’s not always very easy to tell if a forex broker is manipulating prices. There are some tell-tale signs, however.
If you do decide to open an account with one of these brokers, you will likely see the following:
Slippage in forex is another easy way to tell if you have a broker that is manipulating prices, or simply has terrible trading conditions.
Slippage is where the price movement on entry differs from that of your exit. For example, if you enter a long trade at 1.2540 and place a stop loss below the low, then price drops to 1.2492 before rising back up to retest 1.2540 as resistance – you will have experienced slippage.
Typically, slippage is not as severe as this as most traders will exit the trade as it hits their stop loss and just take the loss on the chin.
If you’re paying a broker $7 per lot, then any slippage is going to cost you some serious money over time and will result in completely varied trading results. Slippage is even more ruthless for lower time frame traders or scalpers as they rely on each pip – whereas swing traders aren’t too effected by slippage unless there is a high impact news event.
Stop hunts are one of the most common practices by dodgy forex brokers. In essence, they have full visibility of where your stop loss is and how much you are going to lose. If enough traders in their book have stop losses in that area, they are easily able to make price touch that area (falsely, usually) in order to take profits on all of the traders losses at once.
The problem with stop hunts is they are actually fairly hard to spot as when banks are pushing for higher liquidity levels or better pricing, this usually looks the same as a stop hunt.
The best way to actually tell is to open up another trading platform like TradingView, using another brokers data. You can compare your MT4 pricing to the pricing on TradingView and if the results match – you know it wasn’t your broker stop hunting you.
Massive Spikes In Price
Another way that brokers can manipulate pricing is by causing huge spikes in price. This is where traders are stopped out of their positions due to sudden price spikes that trigger their stop loss orders, even though the market has not really moved that much.
This is actually quite common in highly volatile markets like Forex and CFDs for brokers to manipulate, as it allows them to increase their daily profitability very quickly with a relatively low risk.
How To Stay Safe From Brokers Manipulating Prices
Once you’re with a broker that is manipulating prices, it’s very hard to stay safe. Therefore, the best way to stay safe is when actually selecting a broker.
There are some traits you need to look for in a forex broker to ensure you’re working with a reputable company…
- Highly regulated in multiple jurisdictions (FCA is a great example)
- Phone support
- Offices in multiple locations (Not offshore)
- Processing transactions in FIAT currency
- Great reputation online
- Offering whatever the maximum leverage is in your country (Not just 1:1000)
- Multiple platform choices (Not just MT4)
- A minimum deposit amount around £100-£200
These are the majority of the main attributes of a reputable and regulated forex broker. As you can tell, a lot of them are things that forex brokers cannot manipulate.
In addition to these traits, if any broker tries to pressure you into opening an account with them or makes it hard for you to leave once the contract is terminated then they are not a good choice.
Always make sure your research is thorough and that you are happy with the brokers terms and conditions. If not, then don’t open an account. I’d highly recommend using broker comparison sites like 55Brokers and ForexBrokers in order to make the most informed decision.
In Conclusion – Do Forex Brokers Scam Traders By Manipulating Prices?
In summary, some forex brokers can scam traders by manipulating their pricing. And it’s a fairly common practice. However, there are a few simple rules for spotting dodgy brokers and staying safe – as well as ensuring you’ve chosen a reputable broker before you enter into a contract with them.
Stick to ECN/STP brokers that are highly regulated and process transaction in FIAT currency.
If you have any questions, please do let me know in the comments down below.