I read a lot about Forex brokers hunting stops and helping their clients lose money. This is a common complaint levied against market makers in particular, after all the make money when their client losses but the truth about brokers hunting stops is very different to what most people think.

Lets look at the most obvious type of FX broker to hunt stops.

Forex Market Makers and Stop Hunting

I have actually worked at a market maker and the company never bothered to hunt stops it didn't need to and the reason why is obvious - the fact is 95% of traders lost 50 years ago, the same percentage lose today and the same percentage will lose in 50 years time.

Like a bookmaker, a market maker know they have the odds firmly on there side and they don't need to help a client lose, they know they will do that all by themselves. In fact, the market maker I worked for gave the client a great service in terms of - pips and execution. If a trader was smart they could win but most traders aren't smart and lose.

The Myth of Systems Influencing Price

I see lots of vendors, selling Forex trading systems which say they are only selling x number of systems because they don't want the volume of trades to influence the price! In their dreams! There is no single retail system which is capable of doing this and its all marketing hype.

Other Forex robot vendors say - that if a broker were to find out that their system was being used then, they would hunt the systems stops and but this is laughable.

A Forex market maker will take any system and when you see adverts for “All Forex robots and EA' welcome” – its true! The broker wants them, because they know, these systems will lose money and the retail trader who has bought an automated Forex trading robot cheaply which promises huge gains with no draw down learns the reality of Forex trading.

Any market maker would want a trader who is trading a 100 buck, its easy money for them and all they do is watch as the trader blows his equity and puts it in their pockets.

The Illusion of Stop Hunting – Why Traders Believe it

I talk to many traders who say – my stop got clipped and then, the market went exactly the way I thought and I was taken out by my broker!

The problem with retail traders is they make the same dumb mistake all the time:

They trade with either tight stops of 10 – 30 pips which means they get stopped out in random volatility or they put their stop right behind support or resistance within a few pips. The volume of stops behind these levels means, there just taken out by normal market action – its not the broker its the market that picks them off.

Traders want to blame the broker - but they have made the fatal error of putting their stop at high risk by placing it within normal market volatility. Their to blame NOT the broker, for their stop being picked off.

Final Words

I am always amused by losing traders who blame brokers for their losses ( or anyone else they can find to excuse the fact it was their error). Brokers are not your friend but their also not your enemy either, they just provide a service and its up to you to trade a logical trading system which can win.

Of course, most retail traders simply lose because their trading strategy is based on stupid logic i.e. placing stops in random volatility and they lose. So do Forex brokers engage in stop hunting? The answer is no they don't need to and most clients who blame their broker should take a long hard look at the trading strategy they use.