What is Stop Loss Hunting?
As you know forex brokers make money when you take a position. They charge you some pips when you buy a currency pair. This number of pips that brokers charge when you buy currency pairs is called spread. Different brokers have different spreads for different currency pairs. Spread is almost the only way that the forex brokers make money.
Good and reliable brokers are happy with the money they make through the spreads BUT there are some scam brokers who are not satisfied with this and want to make more money. Stop loss hunting is one of the ways they use to do that. They have some special robots or hire and train some employees who monitor the clients trades. When a client takes a position and sets a stop loss and the market goes against the position and becomes so close to the stop loss, the robot or the stop loss hunter employee increases the spread manually to help the market hit the stop loss sooner. For example you take a short position with EUR-USD at 1.3180 and you set your stop loss at 1.3280. You have a short position and to close this position you have to buy. So your stop loss is in fact a buy order. You pay the spread only when you buy. So you don’t pay the spread when you go short. You pay it when you want to close your short position and so you buy.
Ok! Back to our example. You have a short position at 1.3180 and your stop loss is at 1.3280. The market goes against you and goes up to 1.3275 which is only 5 pips away to trigger your stop loss. As your stop loss is a buy order so the amount of the spread has to be added to the market price and if the result is equal to your stop loss value, it will be triggered. So the market is against you and is only 5 pips away from your stop loss value but it doesn’t mean that it has to go up 5 more pips to hit your stop. If your broker charges you 2 pips for EUR-USD, this 2 pips has to be added to the market price which is 1.3275. So in fact your buy price will be 1.3277 which means it is only 3 pips away from your stop loss. If the market changes the direction and goes down at this stage, your stop loss will not be triggered but this is the opportunity that the scam brokers wait for it. As soon as the market becomes so close to your stop loss, the broker increases the spread. So while the spread is 2 pips and so the market is only 3 pips away from your stop, the broker adds at least 3 more pips to the spread to hit your stop loss. You think that you have lost your money in the market and because of the bad position you had taken, but in fact you have not lost it in a real trade. The broker has increased the spread to pretend that your stop loss is triggered but in fact it is not. The money you have lost is in the broker’s pocket.
I have experienced this myself. One day I have been watching the market through a very famous broker platform. I was checking both the live and demo account and I had one position with the demo account and one with the live account, both at the same time and price and with the same currency pair. Suddenly I saw that my position with the demo account triggered the target but the live account position was still open. When I checked, I found out that when the price became so close to the target, the spread was increased to prevent my position from hitting the target. The spread jumped from 4 to 14 in one second. It attracted my attention and I kept on monitoring the broker and I found out that they do the same thing when the price becomes so close to the stop loss. While the demo position is still open and has not triggered the stop loss, the live position becomes closed by the stop loss. So a trade that could make only $400 for the broker through charging 4 pips as the spread, made $10,000 for hitting a 100 pips stop loss. Easy money!
Why don’t they let the target to be triggered by increasing the spread?
If they let your target to be triggered, your trade will be closed and you will make a profit but if they keep your trade open, it is possible that the market goes against you and then they can hunt your stop loss.
As soon as I became 100% realized that they hunt my stops and don’t let the targets to be triggered, I enlightened all traders I knew. It also caused me to get some infractions from some forums because they work for those brokers. I think two of them even banned me and many of them deleted my post completely.
Can they succeed to hunt your stop loss or prevent your target all the time?
Not all the time. They try their chance. When the market goes to your direction strongly they can not do anything and your target will be triggered. Also when your position goes to your direction right away and doesn’t get close to your stop or when you have a wide stop loss, they can not do anything.
What should you do?
Source: Forexoma.com
As you know forex brokers make money when you take a position. They charge you some pips when you buy a currency pair. This number of pips that brokers charge when you buy currency pairs is called spread. Different brokers have different spreads for different currency pairs. Spread is almost the only way that the forex brokers make money.
Good and reliable brokers are happy with the money they make through the spreads BUT there are some scam brokers who are not satisfied with this and want to make more money. Stop loss hunting is one of the ways they use to do that. They have some special robots or hire and train some employees who monitor the clients trades. When a client takes a position and sets a stop loss and the market goes against the position and becomes so close to the stop loss, the robot or the stop loss hunter employee increases the spread manually to help the market hit the stop loss sooner. For example you take a short position with EUR-USD at 1.3180 and you set your stop loss at 1.3280. You have a short position and to close this position you have to buy. So your stop loss is in fact a buy order. You pay the spread only when you buy. So you don’t pay the spread when you go short. You pay it when you want to close your short position and so you buy.
Ok! Back to our example. You have a short position at 1.3180 and your stop loss is at 1.3280. The market goes against you and goes up to 1.3275 which is only 5 pips away to trigger your stop loss. As your stop loss is a buy order so the amount of the spread has to be added to the market price and if the result is equal to your stop loss value, it will be triggered. So the market is against you and is only 5 pips away from your stop loss value but it doesn’t mean that it has to go up 5 more pips to hit your stop. If your broker charges you 2 pips for EUR-USD, this 2 pips has to be added to the market price which is 1.3275. So in fact your buy price will be 1.3277 which means it is only 3 pips away from your stop loss. If the market changes the direction and goes down at this stage, your stop loss will not be triggered but this is the opportunity that the scam brokers wait for it. As soon as the market becomes so close to your stop loss, the broker increases the spread. So while the spread is 2 pips and so the market is only 3 pips away from your stop, the broker adds at least 3 more pips to the spread to hit your stop loss. You think that you have lost your money in the market and because of the bad position you had taken, but in fact you have not lost it in a real trade. The broker has increased the spread to pretend that your stop loss is triggered but in fact it is not. The money you have lost is in the broker’s pocket.
I have experienced this myself. One day I have been watching the market through a very famous broker platform. I was checking both the live and demo account and I had one position with the demo account and one with the live account, both at the same time and price and with the same currency pair. Suddenly I saw that my position with the demo account triggered the target but the live account position was still open. When I checked, I found out that when the price became so close to the target, the spread was increased to prevent my position from hitting the target. The spread jumped from 4 to 14 in one second. It attracted my attention and I kept on monitoring the broker and I found out that they do the same thing when the price becomes so close to the stop loss. While the demo position is still open and has not triggered the stop loss, the live position becomes closed by the stop loss. So a trade that could make only $400 for the broker through charging 4 pips as the spread, made $10,000 for hitting a 100 pips stop loss. Easy money!
Why don’t they let the target to be triggered by increasing the spread?
If they let your target to be triggered, your trade will be closed and you will make a profit but if they keep your trade open, it is possible that the market goes against you and then they can hunt your stop loss.
As soon as I became 100% realized that they hunt my stops and don’t let the targets to be triggered, I enlightened all traders I knew. It also caused me to get some infractions from some forums because they work for those brokers. I think two of them even banned me and many of them deleted my post completely.
Can they succeed to hunt your stop loss or prevent your target all the time?
Not all the time. They try their chance. When the market goes to your direction strongly they can not do anything and your target will be triggered. Also when your position goes to your direction right away and doesn’t get close to your stop or when you have a wide stop loss, they can not do anything.
What should you do?
- Choose a reliable and well-know broker. Always check the reviews before you sign up. Do not be deceived by those brokers who are proud of having no dealing desk. Some of them may have no dealing desk but they do have stop loss hunter employees!
- Do not set tight stop losses and always consider the maximum spread.
- Try to take the best positions at the right time.
Source: Forexoma.com
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