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.