Things to Avoid with FOREX Brokers

The practices listed here still occur, just much less frequently than in previous years. But you should be aware of them.

Requoting. This is the practice of giving you a different fill from what you were given by your online execution. I am happy to report that while requoting still occurs, its frequency has dropped substantially. You may thank both competition and NFA Compliance Rule 2-43, which limits the times and circumstances that prices can be requoted by brokers.

Market makers uniformly deny stop harvesting -- the practice of running prices to elect a stop-loss order.
Traders seem to think otherwise. Read the review boards for who is hot and who is not with respect to this practice.

Brokers will often widen or balloon the bid-ask spreads on currency pairs when the markets are quiet and illiquid and just before and after a news release. This happens on both market maker and ECN trading platforms. It is a natural occurrence for ECNs, and market makers do it to protect themselves and manage their book. How much it happens and how wide the ballooning becomes are the questions of where effective management ends and profit incentive begins. If you know when and under what circumstances it will occur, you can act accordingly and not be hurt or surprised.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2016. Content published with author's permission.

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