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Forex market manipulation and how to spot it

Jan 3, 2011


When you hear market manipulation you may think is some big player like Goldman Sachs running a high frequency program or maybe a government trying to push their currency in their favor, but in the forex market your worst enemy may be your own forex Broker.

In March of 2006 Meta Quotes Software, the same company that created the most popular currency trading software, the MetaTrader 4, put out a Support Article on their Web Site explaining some of the features of a software your broker can purchase for an extra charge that can potentially  manipulate your trades to maximize their profits.

Some of its features include:

  • Delaying customer’s orders by 5 seconds to give the customer the worst possible price.
  • Increase in spreads in order to trigger stops losses.
  • Watching symbols gaps, so stops are activated at the gap price and not at the client’s requested prices.
  • Disabling, setting, modifying or deleting pending orders during news times.
  • Automating the move of spread, limited and stop levels ahead of news event.
  • Reduce the leverage to force the liquidation of the largest positions of their customers.
  • And more…

MetaTrader is the world’s preferred Forex trading platform. According to some estimates more than 70% of all brokers offer the Metatrader platform and more than 90% of the total retail Forex volume is executed through it.

The name of this software is the “Virtual Dealer Plug-in”, this plug-in can be used to manipulate Stocks, CDFS, Gold, Futures and basically any other instrument your broker offers.

Now we will explain some of the plug-in features in more detail. When you ask MetaTrader for a Market order you would expect to get the current price as displayed on your terminal, but when the plug-in is running your order can be delayed up to 5 seconds, during the imposed delay, your broker will analyze the prices and it will try to give you the worst possible price, so the broker can pocket the difference, it could be just 1 or 2 pips or as high as 10 or 15 pips and if the price moves in your favor the broker can re-quote the price several times until it moves their way.

Not only you could get  the worst possible price when you open a position, the broker can also manipulate the price feed to trigger your stop loss, and when you try to close a position the plug-in will try to split the price in the broker’s favor but never in the customers favor. These manipulations go usually unnoticed and if you ask your broker about it they will always blame it on the market, connection issues or other factors that are hard to corroborate.

We had an account that had been opened for several months and had a balance of around 8K USD, we had been trading a successful strategy from this account for the first three months, but then we started to notice re-quotes on almost every trade and other strange activity, we decided to open a new account with the same broker so we could compare the spread, executions times, re-quotes, profit and losses etc.

We opened a position on both accounts at the exact same time, and just on our first trade we noticed that the new account closed with a 15 pip  profit while the same position on the existing account was re-quoted several times until it finally closed with a 5 pip loss. On other trades there were spread variations of 5-30 pips between accounts, which caused many positions to reach the stop loss while on the new account the same trades closed with a profit.

We repeated the process on different days with numerous trade combinations and obtained very similar results. These discrepancies were also clear when visually comparing charts side by side.

At the end of the first month our newly opened account had a profit of 181 pips while our old account had a loss of -46 pips while executing identical trades. By the third month both accounts started to perform the same way and at this point it became virtually impossible to make any profitable trades from either account.

We confronted our broker with the facts and after some time of discussion they finally admitted that it was standard practice for most Forex brokers to run the virtual dealer plug-in. We of course closed our accounts immediately.

During an audit in July 2009 the NFA discovered that Gain Capital (aka: forex.com) was using the virtual dealer plugin to manipulate trades that benefited Gain to the detriment of its customers.

You can read the official NFA document below:
http://www.nfa.futures.org/basicnet/CaseDocument.aspx?seqnum=2461

You can find more information about the virtual dealer plugin by reading the official PDF document below:
Virtual Dealer Plugin oficial PDF

TO LEARN HOW TO PROTECT YOURSELF AGAINST THE VIRTUAL DEALER PLUGIN: WATCH THE 4XSENTINEL VIDEO

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Comments: 15

Comments:

15 comments

Jerry

Jan 7, 2011

13:44:25

#1

Great information. I already suspected brokers can manipulate the trades, but I though that only offshore brokers did it.
Thank you, very useful article.

Reply

Teddy

Apr 2, 2011

04:11:33

#2

Please, would you tell me the names of the broker that do some manipulation that you know. I just want to know only and I don’t want to tell to any ones else. Please tell me throuht email address if you don’t mind

Thanks
Teddy

Reply

admin Reply:

Teddy, unfortunately we’re not at liberty to discuss which brokers use the plugin and which do not, but very soon you will be able to find out for yourself. We have developed 4xSentinel a metatrader indicator to detect suspicious activity from you broker. 4xSentinnel is currently in launchpad and will be released soon, please subscribe to our mailing list to be notified of release. In the meantime i added a link to the video at the end of this post.

Reply

Alex

Apr 2, 2011

09:35:15

#3

Does this practice also happen on Non-MetaTrader platform’s brokers

Reply

admin Reply:

Alex, as far we know, the virtual dealer plugin only works with the metatrader platform.

Reply

Ayodele

Jun 14, 2011

13:26:39

#4

I agree 100% with you that brokers manipulate our trades.I have been in trades where profit targets are not honoured meanwhile stoploss is quickly taken at exactly the point and after the trade is closed in loss,price reverses at exactly the same point.

In some instances,if price is going in a particular direction,as soon as you place a trade,it is at that same point that market reverses.The way it happens is as if somebody is just waiting for my trades to place his own trades in an opposite direction.

At other times you will see hesitation at take profit target.for example ,a long trade to take profit at say 1.4323 for EUR/USD,price will be touching 1.4323 and be reversing.

It doesnt even matter where the profit target is 10pips,50,pips,or even 150 pips.No body can fool me into believing that those things are natural and ordinary.it is the brokers handwork.

May God show us the way to overcome them.
Really it could be so annoying.
Thanks

Reply

Take profit Reply:

You are absolutely right when you say, it happens as if someone is just waiting for your trades to post his trade on the opposite direction.
The strange think is, on my demo account I am 98% successful while in my real account i am only 42% successful, this regardless of the degree of caution i exercise in my live account.

Reply

Adam

Jan 5, 2012

04:58:31

#5

Are there any brokers you can suggest for someone new to MT4 expert advisors?

Reply

Marc

May 5, 2012

17:49:35

#6

FXCM are the BIGGEST thieves!

GOOGLE: “FXCM thieves”

Reply

emma

May 18, 2012

22:16:09

#7

been manipulated by my broker taking and chasing all my stop losses and reversing take profits…freezing the MT4

Reply

Peter

Jun 20, 2012

14:16:06

#8

I saw this article today 20/6/12. On 20/4 last year, you promised Teddy you were about to launch a 4xsentinnel indicator to detect broker malpractices. How far have you gone with it?

Reply

dyerfino Reply:

We have launched 4xGuardian to detect broker malpratices here is link to its pages

http://4xtrader.net/4xguardian/

Reply

Monty

Jul 5, 2012

17:56:39

#9

Isn’t this a crime? The company producing this software are “facilitating” fraud through theft and deception. Has no-one ever made an official complaint about it?

Reply

Daniel Reply:

Yes, it is. The NFA have applied to these brokers fines for many thousands of dollars. To learn more about it watch this video: http://www.youtube.com/watch?feature=player_embedded&v=LXXvHOYvn8I

Reply

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