Broker's Trick: Hunting Stop Loss and Transaction Slippage

hunting stop loss

Before I formally talk about this issue, please recall this scene to see if you still have any impression: When you are long or short a certain product, after a while you find that the market is moving in the opposite direction to your order. The stop loss point you set is triggered, and then the market moves in the direction you expected after a while. Do you often encounter such situations and feel very annoyed, feeling that the market is always against you. In fact, many times it is likely that the broker is hunting you down. Now that you know this situation, the next trading plan should include solutions to the broker's hunting plan. Here are some main solutions:

First: Avoid placing orders at some important psychological thresholds . For example, integer points like 1850 and 1800. As a broker, I know very well that many retail investors set stop losses at such a position or a position very close to this position. Therefore, as a retail trader, you should understand this, so We should set the stop loss away from these specific psychological barriers, otherwise the broker will trigger a large number of orders to stop the loss.

Second: no stop loss. This way of coping must first ensure that the money in the account can withstand such a toss. I personally think the best way is to run with a lower position and lower leverage. When the broker sees that you do not set a stop loss and the account margin ratio is very high, they will feel powerless, so they will give up hunting you.

Transaction slippage

The foreign exchange market is a huge speculative market calculated in trillions, so there are huge wealth opportunities here. Naturally, as an important participant in this market, foreign exchange brokers will not give up such a fat cake. In order to maximize profits, foreign exchange brokers Then use all kinds of tricks to count traders. I briefly mentioned transaction slippage earlier, so today we will focus on how brokers use it to steal traders' wealth.

First: Risk statement . I believe that many people have not read this risk statement again, so you must not know the tricks hidden in it. Next, let's take a look at the risk statement of an Australian broker.

Risk statement on spread expansion

X Markets provides floating spread betting. Generally speaking, the spread fluctuation is relatively stable, but the spread may be enlarged due to the uncertainty of the price direction or the soaring market volatility, or the lack of market liquidity. When the data is released and the market fluctuates violently. When the spread expands, the net value of the account may decrease instantly. If the net value is lower than or equal to the margin, the system will trigger the forced liquidation of the position. In order to avoid such situations, please carefully check the trading account and the positions that have been opened to ensure that the trading account has sufficient margin to survive such events.

Statement on Transaction Execution Risks

X Markets adopts the STP straight-through trading mode. We cannot guarantee that all orders of traders can be executed at the specified price, especially in the fast-moving market, where the price fluctuates violently. Due to the complexity of the financial derivatives market, it may cause traders There is a large deviation between the actual transaction price and the set price. In some cases, there may even be rejections by liquidity providers, which is a normal phenomenon. The trader's transaction situation is the real market situation. X Markets ensures that the trader's order is executed in a fair market quotation environment.

From the above two risk reminders, it is not difficult to see that the risks and corresponding situations listed above are normal phenomena, and the broker does not bear any responsibility. On the surface, this statement does seem reasonable, but is it really the case? I am here to tell you directly that it is both reasonable and unreasonable. It is reasonable because, for example, the opening of the market due to lack of liquidity will cause a gap. It is unreasonable because the broker can manipulate you in the midst of the jump, such as giving you another slippage, which can easily trigger your stop loss or burst. warehouse. For example, you have a lot of gold overnight, the entry point is 1820, the stop loss is 1800, and the target is 1860, assuming that the price after the gap is 1800.50 under normal circumstances, at this time the broker can slip to 1800 points to trade . If you refer to other brokers, you will find that the points after the gap are similar, and the difference in spreads, this execution price seems to be a normal phenomenon. If you think so I feel bad for you because your opponent is secretly happy.

MT series background plug-in

In the previous section I talked about the broker's background software installation plug-in, the broker can increase the slippage it wants on the selected account. So let's talk about how brokers use MT4 to increase slippage today. Based on this, we have to mention the most commonly used order execution method in MT4: market execution

market execution

Everyone, please pay attention to the bottom line of risk warnings in English letters. Brokers tell us that they will execute market prices but may be different from what you see. There is nothing wrong with this statement, but in fact, the MT4 background plug-in of the broker often implements a slip spread execution strategy based on your stop loss position, in order to make it easier for your order to be triggered by the stop loss. In real trading, this strategy is the most commonly used by brokers, but large brokers or banking institutions will pull the price difference to a larger position. Therefore, when we encounter this kind of situation, we should keep the evidence and make a complaint. There are many cases of such punishment by relevant agencies. Brokers basically admit that they have such behaviors and make certain compensations to traders.

The market price execution mode like the above is called SPT or ECN mode by many brokers. Their purpose is very clear to confuse ordinary traders, and then send a signal to everyone that your order is directly thrown to the upper-level liquidity provider. Are we just earning a little commission as a middleman? If this is the case, why do brokers limit you or even terminate your contract if you make too much profit? Here are two real pictures for you, and you can savor them carefully when you have time.

Finally, I would like to remind all traders and friends that as a trader, you should carefully read the risk warnings of traders before trading, because from their risk warnings, we can dig into the potential risks behind us, so we should before trading Take these risk factors into consideration, so that the transaction is not in a hurry.