Forex trading is my hobby. It is one of the best feelings to watch your account rising when price goes your way. I wish every trader has many successful trades. But to be successful you need to know few things. Few things that beginners usually don't know or even perceive. Old trader will tell you that profit not always depends on your right decisions. You have to remember that there is a broker between you and the market. Imagine that some brokers (maybe all?) can play against you and make profit of your loss. Not funny, isn't it? I won't write which broker exactly do the bad things. In this article I'll describe dirty tricks and try to write how to protect you account. It is very important to know brokers' bad moves, even if we can't do anything to avoid them.
There is a list of brokers' bad moves. I divided them into four parts where I described every dirty trick and tried to tell you how to avoid them. Have a nice reading.
Brokers Dirty Tricks List:
1. Price manipulatoin
2. Slippage
3. Requotes
4. Rising spread
5. Backtesting sucks
6. HFT
1. Price manipulation To tell you about price manipulation I need to write something about types of brokers. There are two essential types of brokers: Market Makers and ECN. You can read more about differences between them on this site. But the biggest difference is that ECN brokers connect you with a worldwide exchange of banks where you directly make trades. Market Maker stays betwen you and this worldwide exchange and all your trades are going through your broker. What does it mean? That your broker can be the other side of your trade. The result is that broker earn money you lose, and lose money when you win. How do you think, will the broker let you win? To make this more understandable I'll describe it with this simple example: Imagine that you buy 1 lot of something. Your broker should cover your trade by buying 1 lot from interbank. With this scenario broker doesn't play against you, he has profit from the spread. But broker can sell you 1 lot without covering it with interbank. This is the situation I wrote about. Broker wins when the price goes down so when you lose.
2. Slippage Slippage is a difference between the expected price when you entered the market and the real price when your position was set. There is nothing bad that the price can change a little in some way. But from my experience it is always changing in opposite way I made my trade. For example when slippage = 5 pips and the spread = 2 pips you are 7 pips less on the start. And when you earn some pips in some way, let's say 10 pips and you want to close this trade you will close it with slippage and earn 10 - 5 = 5 pips. How you see it is better to play without slippage.
3. Requotes Requotes are strongly related with slippage, but I describe them in this part to show their badly influence when trading news. Trading news can be really profitable if using special techniques. I'll describe it in another post. But when you are not enough experienced you better stay on your chart and don't trade news. At news time price can be crazy, skipping 50 pips up and then 70 pips down in a few seconds which can kill your account and leave you with nothing. High frequency of requoting makes that your long position can be set 50 pips above current price and that hurts. The same with closing trades. You really don't control the price and don't know where the price can be in few seconds.
4. Rising spread Some brokers use this way to make profit on our trades. Rising spread exists by the news time or by the night. Sometimes instead of slippage, but sometimes with. Anyway it makes you pay more pips for opening trade.
5. Backtesting I don't know other platform, but if you use Metatrader like most traders do I need to tell you that testing automatic systems is useless. I'll quickly tell you why. In historical data you won't find any slippage, requotes, rising spreads which you see on the real market. So you test your system in absolutely different conditions than your system will work in. If I were you I would be scarred to let my system play with real money.
6. High Frequency Trading I've met this definition on the stock market. The HFT process is described on this site. Do you feel cheated? Me too.
How to avoid all these bad tricks? The answer you will find on this site.
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