has any one heard of the term "stop hunters" or "stop hunting"??? I cannot see how this would work, but I have heard it is possible for brokers to have someone that targets small accounts, and takes them out of their trade. Any info out there???
stophunting is a very common "sport" in interbank community, especially when london bank traders come in in the morning or leave in the late afternoon. In the moring around 7-7.30 GMT their asian-branches pass all the orders and stops to the london traders and so they see where the stops of the customers are. Some of the larger banks/brokers are always in contact and so they know where all the larger stops are and usually they try to clear the stops on both directions in the early london morning. The same sometimes happens when the london traders leave and pass the orders to the yanks. the yanks sometimes go for their stops after 5-5.30 pm GMT. Thats the "classic" stop-hunting in the overlapping of the trading time-zones. Some other forms of stop-huntings also exists in the interbank community, where the larger banks report each other where some larger stops are and "try" to go there...sometimes its a very sucessful "sport" so far...
A lot of traders also speak about the stop-hunting of the brokers around the world, which is quiet a bit different. With the smaller and smaller spreads the brokers are offering nowadeays, their profit on a simple quoted trade with streaming prices got smaller in the past years. Their big income now comes from the stops they have in their books. So if they see that a lot of their customer stop-losses are at a certain point and the real market goes very close to this point, it is very easy for a broker to "quote" the currency in their favour, which means to quote serveral points away from the traded prices in the interbank market to "hunt" for the customer stops. As forex is a OTC-market there is no regualtion on this issue and sometimes its possible that brokers quote 5 pips and more away from the interbank prices. That means that they "earn" up to 5 pips by "hunting" your stop in getting a 5 pip better price from the counterparty they clear your trades after the stop is done (usually large banks and brokers). Compared with a 1 pip "income" for a broker on a single trade quiet a good business for all the "bucket-shop-brokers" around the world.
One of the "ugliest" form of "stop-hunting" is used in some cross-rates during "fast" markets, especially after some important numbers are announced. One example is EURJPY, which is the crossrate of EURUSD and USDJPY. Lets say the numbers ar USD-positive and USDJPY is rising fast and EURUSD is going down very fast at the same time, that normally means that the crossrate EURJPY is very "stable" and shouldn't move at all. But all brokers in this case look where the larger stops in their "crossrates" are sitting and then either quote one of the two major currencies usdjpy or eurusd first to get the "crossrate" moving to the customer stops....I have seen this many times where crossrates have been quoted 20-30 pips away where the real market traded and all the "bucket-shops" got some easy money again...
Despite this, my suggestion is therefore always be careful with london open and close and in fast markets, which is the stop-hunters paradise...
All in this forum a healthy and prosperous year 2005. Michael