Are you worried about the quality of the services your broker is giving you? You might have good reasons to be concerned, especially if your broker follows a “market maker” model, which a large majority of brokers do.
This is not to say most market making brokers are crooked. However they do benefit from their clients losing trades, as well as profiting from spreads. Unscrupulous brokers can widen spreads from time to time beyond a fair market rate, both to earn more commission from their clients, and also to try to shade prices into clusters of stop loss orders. Brokers can do this because they control the price – they “make a market”.
Consider the following scenario. A broker has thousands of customers long of a particular currency pair, all with stop loss orders at 1.1000. The market price is above that level but falls to 1.1010, just 10 pips away. If the broker can move the Ask price down to 1.1000, even if just for a split second, they can stop out all those trades and collect the amounts risked. In fact, they could even gap the price down a pip or two further and collect the extra – assuming the stop losses are not offered with guarantees!
As well as dishonesty, simple poor execution and bad liquidity can cost clients slippage beyond what they might expect.
How to Judge a Broker?
Traders who are concerned about their broker’s execution often find themselves unsure about whether they are suffering at the hands of the market or at the hands of their broker. It could be a mixture of both. In volatile conditions, it is hard to tell the difference.
One tool traders have used is to compare prices quoted with the price feeds of other brokers. If only one broker has an unexplained price spike, gap, or seemingly excessive spread widening, that strengthens the case that the particular broker is letting its clients down.
To make things easier, and to help differentiate between legitimate concerns and paranoia, Tradeproofer offers several online services that allow subscribers to compare minute by minute execution between their broker and a wide range of other brokers. A new free execution comparison service has been launched in time for the British Referendum on European Union membership taking place this Thursday 23rd June.
The free service covers over 40 Forex currency pairs, including all of the most popular instruments. Users just choose the pair they want to check, and a chart appears showing a range of maximum, minimum, and average Bid and Ask prices for that pair second-by-second! The data is compiled from real prices quoted by over 80 Forex brokers. This enables an easy comparison with your broker’s execution report on a recent trade, to determine whether it was far from the market average, or right at or even beyond a maximum or minimum. If you use Metatrader4, there is a function allowing an easy upload of a series of trades to be checked, so you don’t have to pick through the reports and charts manually. This is a powerful tool not for just checking the execution of particular trades, but also for determining over a sequence of many trades whether your broker is giving an average, worse, or better execution performance than the “average” broker.
Clients who write to their brokers challenging poor execution sometimes find that their broker is prepared to repay any resultant loss, so this tool can help traders beyond just determining whether the time to look for a new Forex broker has arrived.
Tradeproofer’s Subscription Services
Subscribers are offered a wider range of services. They include an Expert Advisor for Metatrader4 which automatically detects poor executions, a simulation tool which simulates your trade history and execution costs across 100 different brokers, a brokers spread report, and professional assistance in filing claims with your Forex broker.
Tradeproofer is an interesting tool that is worth checking out if you are worried about your broker’s execution or honesty.
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