Legalized Forex trading robbery – Broker Spread widening ?

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Legalized Forex trading robbery - Broker Spread widening ?

Broker spread widening – introduction

When I started trading Forex trading things were very simple. The difference between the buy and sell prices was called the spread and it stayed pretty consistent (although spreads were slightly higher than today).

Fixed broker spreads

Today the common and general practice of spread widening by brokers could be killing the retail industry and “killing the Goose that lays the Golden Eggs”.

It is a bit like the elephant in the room – everybody knows it is there but nobody want to talk about it. Now and then there is a comment  “be careful of announcements” but nothing is really addressing the real problem.

In general Brokers used changing liquidity as an excuse for fluctuating spreads. The size of spreads are not strictly regulated or legislated so now Broker are pushing spread widening to the extremes. And how do we know this. A few years back we designed a broker spread monitor that recorded the minimum, maximum and average spreads on our live trading accounts. In fact this monitor is now pretty standard on all Expert4x EA’s.

http://expert4x.com/new-expert4x-broker-spreads-monitoring-indicator/

 

 

Measuring Broker spread widening

A few months back we started a practice of testing our EA’s on small live accounts rather than back trading demos. The results of 1 months back trading and 1 months forward trading on a live account are so different it is scary. In fact most trading EA’s have become extremely handicapped by this and that is why we are only using forward trading on live accounts as the best EA testing method.

Normal and accepted practice

So what is now regarded a normal practice:

  • When there is an important Economic announcements it is not uncommon for certain Brokers to increase spreads from 2 pips to 30 pips to discourage trading during that announcement. Discouraging trading during an announcements is one thing but what about the ordinary swing trader that trades on a longer term basis. This is a huge minefield that has to be catered for.
  • Over weekends spreads general increase by up to 40 pips. Again a challenge for swing traders.
  • We have noticed what appears to be a general cleanup practice before the open on the UK and US markets that Brokers spike spreads to “clean out the trading book” prior to the session.

So often deals are stopped out when the price did not come remotely close to the stops or pending orders.

Some brokers even use what they think is fair game to hunt stops where by spiking the spread for a micro second buy stops  or buy pending orders can be activated where the actual normal price did not come close to those levels. This conveniently clears a whole level of orders off the books.

There is not much regulation to prevent today’s common practices. A few years back FXCM was involved in a Class action where a group on investors proved that FXCM was using immoral methods and software to manage trading results. FXCM also needed to reach settlements with the NFA and CFTC about these claims.  Somehow it is difficult to find out more information on this using a Google search these days. There are some scattered references like http://forums.babypips.com/forex-brokers/58294-fxcm-has-got-more-scam-cases-than-most-unregulated-brokers-why.html

The problem today that these excessive spread management practices have become generally accepted and are not regarded as unfair – just something we retail traders need to live with. A bit of a “like it or leave” attitude. Times are changing.  Luckily some Brokers are better than others but they need monitoring.

It is not all doom and gloom

Next article: What you can about the practice of Broker spread widening.

http://www.moneymakingforextools.com/dealing-with-forex-broker-spread-widening/

Compare 60 Broker spreads

http://expert4x.com/compare-the-forex-spreads-of-60-forex-broker-live/

Other Articles

http://www.earnforex.com/blog/how-can-forex-brokers-cheat-you-legally/

Comments

Please add any personal experiences or comments below

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2 Comments

  • Karl

    May 18, 2015

    I don’t think it’s only spread widening, but also slippage. I made a very good experience with http://www.tradeproofer.com these guys made it possible to actually got money credited back to my account from the broker. It’s free but very valuable. There is also broker comparasion available on their website.

  • Viktor

    May 21, 2015

    Hey,

    as a Co-founder of TradeProofer, I can confirm what Karl said before. We are dealing with this very issue, we help scammed traders to get their money back. We developed a tool that can detect stop-hunting and other trade execution scams of brokers even retrospectively. Additionally, we can also support your claim against your broker with factual data.
    In case you want to find out whether your broker has been fair with you or not, you should check the TradeProofer website.

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