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“THEY took my money!” That’s the rallying cry of indignant traders who have lost their accounts. And sometimes, it’s true.

There are two main parties who get the blame for lost money: brokers and institutional traders.

Here’s how unscrupulous brokers can take your money:

If you are trading during times of high volatility, such as during major news releases, they are able to widen the spread (the difference between the bid and the ask) to get your stop loss.

They can justify this due to the wild movement of the market. If you have been trying to get into a trade, they can also use this to give you a much worse price than your order.

Note that this can be especially true of certain spreadbettors, who are less in the limelight than brokers (except in the UK). Brokers…well, the industry has shaped up a little bit in recent years, but there are tons of unscrupulous ones out there. And there are some relatively good brokers and spreadbettors around (we traders will never be satisfied).

How the institutional traders can take your money:

Basically, I am less convinced of manipulation here. The usual accusation is that price is manipulated up and down to “get” stop losses of masses of traders. The implied accusation is that banks are using their privileged information regarding client stops. That certainly may have been the case up to last century and even early 2000s. In the last 10 years, I have been hearing less and less rumours of this going on. Are people forgetting? I believe that more safeguards have been put in place within institutions, but I have no solid data of this.

HERE’S THE BOTTOM LINE:

It doesn’t matter if the banks actually have information of your orders – where traders’ stop losses are is usually blindingly obvious anyway. Breakout traders will place their stop losses either on the opposite side of the range, or about midway into the range. Bounce traders will trail their stop losses below swing lows. If you looked at the chart, you could probably figure it out yourself! Furthermore, retail traders now have something that levels the playing field: the SSI. This relatively unknown retail sentiment tool that FXCM makes available to all their clients (I am not suggesting you open an account with them one way or the other, by the way.) I have monitored it for awhile and it does provide useful information regarding whether retail traders are long or short.

You can get more information on the SSI from here:

http://www.fxcmexpo.com/videos/speculative-sentiment-index-ssi/

Of course, we can get into a long discussion of the details of how even many pro traders believe the market is manipulated. My stance is simple: Unless a thing is proved or disproved beyond doubt, everyone is entitled to an opinion. (In fact everyone is entitled to an opinion regardless.) However, from a trading standpoint, does it benefit your trading? If it disempowers you, forget it. If you have built an entire trading system around this belief, and how you can get back at “them”, or even just trade alongside “them”, then by all means. Whatever works.

In the end, we trade our beliefs…

With best wishes for your trading,

Kaye Lee
Private Fund Trader/Head Trader Consultant
www.straighttalktrading.com
“We take your trading seriously. You should too. Make It Pay.” 
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