Hi All,
Now is the time to talk about brokers. I have seen many articles on how big cheats our brokers are, what all they do to take our money and all that. But i did not trust any of these articles. I thought that all these articles were rants of people who lost a lot in trading. I firmly believed that trading depends only on us and how we handle it. But over the last one or two weeks i have also started believing these things.
I do not have experience with lot of brokers. I have had only 2 or 3 brokers over the last 5 years. Since i am going to talk about them, i would not want to name them. Everyone knows that during times of news releases, the brokers suddenly increase the pip spreads. They advertise that their pip spreads are the lowest and all that but without warning they increase the spreads during news catching the traders unawares.
This is the simplest part cos this is something that we expect. Another worse thing is what is called as stop hunting. The brokers look for where people have placed their stops and then make sure that the prices move to take out the majority of the stops even though the actual price would be different. In case of mini accounts and people with no stop losses, they make sure that they move the price so the the account gets closed out. It happened about 2 weeks before for me when my stop loss was hit by one pip (the low for the day according to the broker was 1 pip less than the SL for my long) though the other brokers had much higher lows for that day. You cannot do anything about this. The best way is to have good money management.
Next is the new concept of 'At best' prices. Till a few weeks back, my broker used to give me the price for which i clicked but if the market is volatile and the price moves, he simply throws a message saying that he cant get the price for me and so does not take or close the trade. Lately, my broker has launched a new option called 'At Best' price where he says that if he is not able to get the price for which i clicked, he would get me the next best available price. Theoratically, i have both the options of either choosing to get the price shown or choose the 'at best' option. But i find that always, when i click to buy or sell at the price shown on the screen, it always says that the price has moved (even though i can clearly see that the price remains the same for the next 10 seconds even after the message that the price has moved is shown). When i enquired with the broker about this, he asks me to choose 'at best' option for all trades. In other words, even though i have both options and even though the 'at best' option is something to be used only under highly volatile conbditions, i am indirectly forced to choose the 'at best' option for all my trades.
What does the broker get by me choosing the 'at best' option? Lets say, that my broker says that the spread for GBPJPY is 7 pips...so he takes around 7 pips as charges for every trade of mine. By forcing me to choose the 'at best' option, it means that he can give me any price which in turn means that he can charge me extra 2-3 pips and i can do nothing about it. When the price on screen shows 239.10 and i am forced to choose 'at best' option, he can give the lot at a price of 239.13 and i can do nothing about it. This way the broker makes extra 2-3 pips from every trade.
These are some of the ways brokers make money and i am sure that there are other ways as well. The best way to win against this is to have good money management, have enough money to sustain even huge losses and not try to act too smart or cute. Remember that there are always people who are way smarter and way powerful than us.
Happy Trading!!
Saturday, June 16, 2007
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1 comment:
Perhaps you could look at an ecn broker. There's absolutely no stop hunting. I use EFX and find them very good. See efxgroup.com.
Kind regards.
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