How to Tell if Your Broker is Trading Against You

Once you achieved a certain level of self-esteem with demo trading, it is time to go live and open a real forex account. The next couple of days will probably be filled with the headache of searching for forex brokers reviews and observing the feedback and suggestions from other traders. However, you might notice a peculiar tendency in some of the reviews to claim that forex brokers trade against you and their main agenda is to wipe out your account. For a new little fish in the huge pond this information is very discomforting.   

There are many Forex Brokers out there and most of them have Reviews on the net. The question is, are bad reviews really unbiased or they are written by either competition or bitter traders who emptied their account because of the lousy experience? After all, only when things go bad we tend to complain! On the other hand, are good reviews really unbiased or are they written by the representative of a particular forex broker? 

Forex brokers, in some cases, act as market makers and “trade against clients” or, better say, bet on clients’ loss. That doesn’t mean that if clients earn a million dollars that they will not pay you earnings. Regulated brokers will always pay earnings to clients, so clients do not need to worry. Traders do not need to think about that; it is the broker’s risk. Of course, if traders trade with a large amount of money, brokers never act as market makers in practice. 

If a client deposits $100, brokers know that there is a high probability that the client loses $100 in trading.

If you are suspicious about your broker, check out these factors:

  1. The broker’s type: If your broker is a Dealing Desk, they tend to trade against you.
  2. Leverage: Untrusted brokers tend to offer extremely high leverage for new traders.
  3. Requote: There are too many requotes happening with this broker.
  4. Slippage: The broker may slip the price when you want to open or close a position.
  5. Markup: The price offered would be higher than the quoted price.

The Role of Forex Brokers in Trading

As a trader, it’s crucial to comprehend the significance of forex brokers in our trades and how they can influence our success or failure. Forex brokers are intermediaries between traders and the forex market, executing trades on behalf of their clients.

They provide access to trading platforms, offer various trading instruments, and facilitate transactions for their clients. Forex broker’s responsibilities include providing reliable market information, executing orders promptly, ensuring client funds’ safety, and offering customer support services.

They also play a crucial role in educating traders about different aspects of the forex market. It’s essential to choose a regulated broker as they are bound by strict rules that protect investors’ interests. Therefore, understanding the importance of broker regulation is vital when choosing a forex broker to ensure that you’re working with a reputable company that prioritizes its clients’ best interests.

Two Types of Online Brokers

As mentioned, brokers do trade against their clients, which is not exactly a secret — nor is it actual cheating — but it is something that a lot of people may not even be aware of.

Another thing to note is that not all brokers do everything in the same way. In other words, details on how they operate differently from one broker to another, but most can be classified in one of two groups — A Book brokers and B book brokers.

When trading CFDs and Forex the contract is always between you and the broker.  So technically the broker is always trading against you.  It is how they manage this risk themselves that makes the difference.

Market Makers

The retail brokers do want to see you fail, since they make money when you lose money. Basically, this kind of broker takes the other side of your trade. In this case the retail forex broker is the market maker. It can change prices, widen spreads and, of course trade against you. To every dark side, there is a plus. In our case retail broker have an advantage – you can open an account with very little investment, get very high leverage and the demo platform is available for practice longer than 30 days! Retail forex brokers offer micro and mini lots which allow you to trade very small sizes. . Not all of these brokers will be “hush-hush” about their technique, but some sure will.  

Ways through which brokers trade against you

When a new trader finds out that a broker’s service is regulated with well-known and powerful authorities, they think they are at a safe place and are not going to cheat or traded against anymore, but sadly, this is not true. There are some ways through which a broker trade against you:

Stop loss hunting is one of the effective ways for a broker to cheat or trade against you. Market makers make money when you take the position, they charge you some pips when you buy a currency pair.

Slippage is the trick made by Dealing Desk brokers or Market Maker brokers. As we all know, market makers are trading against you, their profit is in your loss, they will try not to make a profit.

Re-quoting is another trick used by market maker brokers to trade against you. When the price in the market is going up strongly, and you chose to buy and when you click on the buy button, it delays for a few seconds, and instead of taking the position selected by you, gives you a new price that is higher than the price you want to enter.

Leverage is a good facility that helps traders in trading large amounts with smaller accounts. Market makers are aware that most of the new traders, they are inexperienced, are going to misuse the leverage.

On a bright side, market makers can offer an excellent opportunity with their high leverage and various trading instruments. Trading in such conditions can be profitable if you’re an experienced trader with great control over your actions. That is why trading with a DD broker is not always a bad choice, because it depends on your trading skills, goals, and needs. However, whatever your choice is, make sure to seek a genuine broker that you can trust and would help you achieve your goals!

Types of Charts Manipulations

As mentioned before, manipulating charts is possible, and this is something that brokers do. The following are the most common practices that people engage in when they want to turn chances in their favor:

Slippage

Sometimes, market conditions are volatile, so the price of a currency could be different from what people thought. The term “slippage” defines this gap between currency pairs, which often happens to many traders.

In some cases, this can be dangerous because some brokers can blame slippage even if the price gap is due to something they did. Therefore, you should be cautious if it becomes a pattern and starts to affect your position.

Spoofing

This strategy is illegal and unlawful, and it consists of placing phony orders in a specific currency, which develops a fake interest.

In consequence, people can lose a lot of money since the ones who placed the orders have no interest in buying.

As a result of increased demand, the price will go through artificial inflation. In turn, this attracts more investors. However, the broker will cancel these orders before their execution.

Spoofing violates the law, so it has legal consequences. It’s a direct alteration of the Forex market. Therefore, there could be severe consequences for the investors involved.

False Spikes

If you know about trading and investing, you’re probably aware of the fact that this market is very volatile and unpredictable.

Like many other traders, when you see a low spike, it’s not a surprise, right?

However, some unethical brokers take advantage of this process and fabricate price surges, which lure unsuspecting traders.

Once buyers place their order, they’ll see the price moving the other way, resulting in a significant loss.

Brokers can only manufacture false peaks in individual accounts. Therefore, a way to handle this situation is to compare your account with the one of another people. You can also use the charts that third-party Forex vendors provide.

Stop Hunting

This is a common practice when investing in Forex. However, unethical brokers take advantage of it and try to trick others into making specific decisions that will benefit them.

When doing stop hunting, brokers instruct others to close a specific trade, so they don’t lose more money than they can afford. After stopping, they push prices to move them in the other direction.

Stop hunting is something that frequently occurs when the market is extremely volatile. Thus, it’s also a practice you should watch out for.

Front Running

Unethical brokers also use front running, which consists of observing the behavior of another investor and making choices faster than them.

In other words, if a broker says they intend to place an order, the other one will immediately place it before them.

Executing the deal ahead of the other trader not only manipulates the charts but also harms an individual’s position. Therefore, it can result in negative outcomes for the broker involved.

Conflicts of Interest in Broker-Client Relationships

Get ready to learn about potential conflicts of interest that may arise in the relationship between brokers and their clients. As a trader, it’s important to understand that while brokers are there to facilitate your trades, they are also running a business.

This can lead to broker-client conflicts as the broker may prioritize their own profits over your best interests. One common conflict of interest is when a broker engages in ‘stop loss hunting.’ This occurs when a broker intentionally triggers stop-loss orders for their clients so that they can profit from the resulting price movements.

Another example is when a broker offers incentives or bonuses for high trading volumes, leading traders to make unnecessary trades solely for the purpose of receiving these bonuses. It’s essential for brokers to act with ethical responsibilities towards their clients and avoid any actions that could harm or exploit them.

No Dealing Desk Brokers

Forex broker without dealing desk (ECN type) is more likely to be honest about the trades since it passes your trading orders off and doesn’t care if you are winning or losing. Their agenda is to get you to trade more and therefore earn more via spreads or commissions. These forex brokers are more like interbank brokers. They don’t trade against you and therefore there is no need to manipulate neither price nor spreads. Spreads are in most cases tighter, but you are probably have to pay commissions. Every trade you make passes through interbank. With ECN forex broker the leverage is generally lower and the minimum account deposits are higher.  

Picking the right broker

If you are new and you don’t want to lose all of your money in a few months, at best, you will need to keep in mind some things about your brokers, especially when it comes to how to choose the right one to work with.

Whether a broker trades against the client is not the key question as long as they provide you with fair and clean execution of orders.  There are numerous things to look for, but we will now list some of the most important ones. Always remember to check them out, as the success of your trades may very well depend on this.

Distinguish Scam and Fraud

  • If your broker does not respond to you, it may be a red flag that they are not looking out for your best interests.
  • To make sure you’re not being duped by a shady broker, do your research, make sure there are no complaints, and read through all the fine print on documents.
  • Try opening a mini account with a small balance first, and make trades for a month before attempting a withdrawal.
  • If you see buy and sell trades for securities that don’t fit your objectives, your broker may be churning.
  • If you are stuck with a bad broker, review all your documents and discuss your course of action before taking more drastic measures.

To avoid falling victim to such practices, here are a few things you should watch out for:

  1. Broker transparency: A reputable broker should provide transparent information about their business operations and the services they offer. Be wary of brokers who refuse to disclose important details about their company or those who have a history of withholding crucial information from their clients.
  2. Regulatory compliance: Before signing up with a broker, make sure they are registered with regulatory agencies such as the National Futures Association (NFA) or the Financial Conduct Authority (FCA). These organizations require brokers to adhere to strict standards when it comes to client fund protection, financial reporting, and other aspects of their business.

Stuck With a Bad Broker?

Unfortunately, options are very limited at this stage. However, there are a few things you can do. First, read through all documents to make sure your broker is actually in the wrong. If you have missed something or failed to read the documents you signed, you may have to assume the blame. 

Next, discuss the course of action you will take if the broker does not adequately answer your questions or provide a withdrawal. Steps may include posting comments online or reporting the broker to FINRA or the appropriate regulatory body in your country.

Frequently Asked Questions

What is the process for resolving disputes with a forex broker?

If you have a dispute with your forex broker, the first step is to contact them and try to resolve the issue directly.

If that doesn’t work, you can file a complaint with a regulatory agency or industry organization, such as the National Futures Association in the United States.

Many brokers also have their own internal complaints procedures.

If all else fails, arbitration proceedings may be necessary.

Consumer protection laws provide some recourse for investors who feel they’ve been treated unfairly by their broker.

It’s important to understand your rights and options if you’re considering trading on the forex market.

How do forex brokers make money?

Forex brokers make money through two main revenue streams: spreads and commissions. The spread is the difference between the bid and ask price of a currency pair, and it’s how brokers earn their profit on each trade you make.

Commissions are charged separately from spreads by some brokers, usually for trades made on certain account types or with specific trading platforms. Additionally, some forex brokers may charge other fees such as withdrawal fees or inactivity fees.

It’s important to understand your broker-client fee structure before opening an account to avoid any surprises down the line.

Can forex brokers manipulate the market to benefit themselves?

Forex broker transparency is a crucial aspect of the market. As an investor, you may wonder whether forex brokers manipulate the market to benefit themselves during times of high volatility.

While it’s possible for brokers to engage in unethical practices, reputable brokers prioritize their clients’ best interests and adhere to strict regulations that prohibit market manipulation.

During volatile periods, brokers may adjust their spreads or implement risk management tools to protect both themselves and their clients from potential losses.

Ultimately, maintaining a healthy broker-client relationship requires trust, open communication, and transparency from both parties.

What regulations are in place to protect forex traders from unethical practices by brokers?

Regulations play a crucial role in protecting forex traders from unethical practices by brokers. The enforcement of regulations ensures that brokers operate transparently and do not take advantage of their clients.

Investor education is also essential since it empowers traders to make informed decisions.

Regulations vary across jurisdictions, but they typically include measures such as minimum capital requirements for brokers, segregation of client funds, and mandatory reporting of client transactions.

In addition to regulatory oversight, many reputable brokers voluntarily adhere to industry best practices and standards to further enhance transparency and protect their clients’ interests.

Are there any red flags to look out for when choosing a forex broker?

When choosing a forex broker, it’s important to keep an eye out for red flags that indicate a lack of transparency. One such red flag is hidden fees. Make sure you read the fine print and understand all of the fees associated with using a particular broker before signing up.

Additionally, look for brokers who are open and transparent about their operations and practices. If a broker seems hesitant to answer questions or provide information, it could be a sign that they’re not above board.

Ultimately, your goal should be to find a broker who prioritizes honesty and transparency in their dealings with clients.

Conclusion

Unethical brokers exist, and you’re prone to encounter them if you’re in this industry. However, now that you’re aware of some of their tactics, you can use different strategies to protect yourself.

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