The Basics

It’s not your broker stop-hunting you

Stop-hunting is a very commonly discussed topic in the retail forex community – probably more so than it really deserves to be. It seems to come from a fundamental lack of understanding about how the markets operate. A prime example is a recent thread started on BabyPips where the poster asked if it was possible for ECN brokers to run stops.

Here’s the deal. Despite what some people would like you to believe – mostly because they refuse to accept blame for their own inability to perform in the markets – brokers do not make a habit of running customer stops. They really just pass prices through from the inter-bank market. ECN brokers don’t make markets at all (yes, there have been some cases of manipulation, but they are not nearly as prevalent as the blamers suggest). They just pass customer orders through into the market for execution in a way not dissimilar to the way stock or futures brokers operate. They have absolutely zero influence on the prices shown.

Stop-hunting, which really should be called order-hunting because they go after limit orders as well, happens in the inter-bank market. If the market price gets sufficiently close to a level where it is suspected that a high quantity of standing orders sit, certain types of traders from banks, hedge funds, etc. will attempt to get those orders triggered to benefit from the subsequent move.

Talk with anyone who’s been a professional trader in anything like a market maker or floor trader situation and they will have plenty of stories about stop-running. It happens in all markets, not just forex. The way to avoid it catching you out is to either not use standing orders or to place them at price levels away from chart points where a lot of other traders are likely to have their orders.

Trading News

No Evidence of Stop Hunting by Retail Forex Brokers

The subject of stop hunting continues to come up quite frequently, especially where forex trading is concerned. In response to a thread on the subject, Skalpist left the following comments on a BabyPips forum entry (the main question of the thread was whether Oanda runs customer stops). I certainly haven’t done the kind of testing mentioned here, but I agree with the general conclusion.

I’ve tested this theory on A LOT of brokers. I have yet to find a broker that really stop hunts. One way to test this for yourself is to run multiple copies of MetaTrader each with a different broker.

At 4Squared, at one time we were doing this for 18 different brokers at once and tested across all of them for 6 months. In all that time, there was not a single SHRED of evidence that any of the brokers did anything remotely like what they are repeatedly being accused of.

Oanda was one of the brokers we tested.

Thus far, in all of our testing, we have found a 100% correlation between traders simply making poor trading decisions and their claims of stop hunting.

In short, Oanda doesn’t stop hunt, neither does IBFX, neither does FxOpen, or FXCM, or …

In the case of Oanda, they have something north of 1 billion in deposits and several hundred million in active trades. Do you really think a company that is making that much money servicing trades is going to screw it up in such an easily verifiable method of stealing? Give me a break.