Broker Cannibalism a Retail Trader’s Worst Nightmare (Last Part)

Ø  Signs Your Broker Is Cheating You

• A-booking and B-booking
• Broker Manipulation (Slippages and Stop hunts)

Ø  Selecting Brokers

• Regulated Brokers
• Un-Regulated Brokers

Ø  Conclusion

• All we’ve talked about (recap)
• My Two Cents

Part Two!

Signs Your Broker Is Cheating You

Have you ever been stopped out of a trade even though the price wasn’t in the vicinity of where you placed your stop loss?

Or when you were stopped out you lost more than you originally had set to lose if you were to be stopped out even though there was no news event out. These above situations could be a sign that your broker is cheating you. Yes, you heard that right. This brings me to the discussion of the day

A-Booking, B-Booking, Slippages, and Stop Hunts

Let’s dive in!!

A-Booking: When brokers A-book their customers’ orders this means they are processing and directing the trades to the market. which means their buy orders are being matched with counterparty sell orders or to the liquidity provider. In this form of brokering the brokers make their money purely off the commissions they charge.

A-booking is said to be associated with Straight through processing abbreviated as (STP) or Electronic Communication Network (ECN), these are forms brokers take, STP brokers or ECN brokers. Every A-Book Modelled broker has the following characteristics

1. Transparency, as client orders can be seen by others and liquidity providers
2. No Conflict of interest, as brokers make their money solely on commissions charged
3. Direct-to-market access as clients’ orders are taken directly to market liquidity 

Basically, every trader wants their brokers operating this sought-after model as they know they are safe from any sort of manipulation due to brokers who are devious and cheat on their customers.

B-Booking: When brokers B-book their customers it means in simple terms, they are trading against their customers. Yes, that’s what I said. But wait, I know what you are thinking; is this even legal?

Lol, shockingly it is, but B-booking isn’t really as bad as it sounds. How??, let me explain.

Just like the A-booking model, where brokers send client orders to the free, liquid market, B-booking model brokers just take the opposite end of the client’s trades, acting as opposing liquidity, that is really what B-booking is about, at least should be.

B-booking also known as the Hedge, focuses on the Net direction of all orders made by clients and the broker trades the opposing way.

Now you might think, this means your broker is out to get you, well, not necessarily cause if you are an experienced trader, you will still make money even under a B-booking broker. The fact that your broker is operating a B-booking model doesn’t necessarily mean they are bad unless they engage in some other things which I will talk about next. Let me even surprise you, most brokers you will see out there are actually using this model, some use a combination of the two, they might do 70% A-booking and 30% B-booking.

Shifting their most profitable clients to the A-booking side of the accounts while their losing clients remain on the B-booking side.

Now, let us look at the real thing, that tells you that your broker is actually out for blood!

Broker Manipulation (Slippages and Stop hunts)

Now, this is a conspiracy that will forever be talked about in the trading industry about whether or not your brokers manipulate your trades. The truth is, some do.

Yes, some of the non-USA brokers out there who are foreign-located thrive in manipulating their clients’ orders, how do they do it? There are several different ways you can be manipulated by your broker, but the most common ones are either through stop hunts or slippages, which are very common with B-book model brokers.

Now, they do all this by way of software called the Virtual Dealer Plugins

This software is capable of changing the price at which a client originally entered, also known as slippage or taking a client out with a candle stick spike, before correlating with correct market data and going in the market direction.

What are signs you will see that suggest your broker falls in this category?

Common characteristics of unscrupulous brokers:

1. Slippage: You get filled at the wrong price far from what you initially saw on the quote screen when you placed your order, e.g let’s say a client entered a buy order on EURUSD at 1.0067 originally,  then when the order gets filled he then sees his entry price at 1.0070 now that’s a 3 pip slippage and this means his broker has just added a 3 percentage in points threshold as an obstacle before the trader gets into a profitable arena, undermining the trader’s profits, para-adventure the trade turns out profitable. Now this is a very bad fill and if you notice your broker does this to your orders frequently even in times when there is no high volatility news, then they are screwing you over.

2. Stop hunts:  This is a very common practice among unscrupulous brokers and how this goes is your broker manipulates the price, sending it to where you have fixed your stop loss immediately turning your trade unprofitable, especially because they are trading against you, that amount you risked becomes their profit essentially.

With the aid of the software Virtual Dealers Plugin, they see all clients stop losses and they manipulate accordingly. If you notice you keep getting stopped out of trades with huge surges and spikes and then in seconds or minutes price immediately goes in your pre-determined direction, then your broker is most likely in this list of unscrupulous brokers.

Now that you know how to identify when your broker is cheating you, that takes us to the final points of this article which involves Selecting your broker.

Selecting Brokers

When selecting brokers, it is imperative to know that it is highly dependent on the following status;

1. Capital at Hand
2. Where you are in the world
3. Limited Identification

Generally, traders with little or no capital will drift towards unregulated brokers than regulated ones because there is a low barrier to entry (On-boarding) financially.

I want to talk about the two types of brokers, and at the end of this topic, you will be well-equipped with the knowledge of both and choose one according to your unique situation.

Regulated Brokers:

Regulated brokers are licensed by the Commodity Futures Trading Commission (CFTC), which means this is the governmental arm that regulates their affairs, so there are certain things that they can and can’t do.

When trading with regulated brokers, the safety of your capital is guaranteed as there can’t be any story of fraudulent affairs that will make all client’s capital vanish, also there are no issues of market maker manipulation, due to constant checks and balances so also as auditing they undergo due to their regulatory commandment.

Now, it is all good as regards security, but why doesn’t every trader use regulated brokers then?

There are a lot of reasons but I would mention a few of them which are:

1. Low Leverage: Due to their regulatory restrictions they are not allowed to give high leveraged margins they can’t go as high as 1:100 and this is meant to protect clients’ funds during peak volatility hours. A lot of people don’t use regulated brokers for this reason.

2. Slow On-Boarding: a lot of Information has to be submitted to regulated brokers before you are allowed to open an account with them, and because of this you will find some underage not wanting to use regulated brokers, as they have to provide hard evidence of their true identification.

3.     Where you are in the world: A lot of regulated brokers reside in the USA and there are so many restrictions for clients in the USA not being able to trade CFD (US.500, US.30…. etc.) so USA clients search for unregulated brokers to be able to trade this sort of assets.

Un-Regulated Brokers:

In simple words, un-regulated brokers don’t possess a license with the government or any notable regulatory body, it doesn’t mean the company is a scam but it means they don’t meet the requirements of a regulatory entity and you will find these brokers having offices in the Seychelles, and some very strange nations where there is no government interference.

Now, these brokers are not necessarily scammers but they sure won’t be liable if your capital vanishes due to their collapse, so there are risks associated with them.

But with all of this, clients still deem it fit to use them as their brokers, what are the pull factors of such brokers?

Let’s take a look:

1. High Leverage: These brokers offer very high leverage like 1:500 up to 1: unlimited, which makes it possible for clients trading very low capital to amass large trades at a size over 10 times their capital at a go.

2. Fast On-boarding: As long as you submit your name and the information you are expected to fill in, you will be allowed to trade, there is very little due diligence done on the part of the brokers to ascertain that their clients are of age, so a lot of underage clients use them.

3. More Products: Un-regulated brokers have a lot of assets across all sectors in the industry which is an attraction for traders around the world as they can trade anything they want and make a lot of money with fast-moving assets.

Whether Regulated or non-regulated, it depends on the trade which he or she chooses to trade, as the regulated brokers offer transparency and full capital protection, and the unregulated offer low capital participation and also more products. Depending on whether a trader has a lot of capital to trade with or not, he can make his choice.

That Concludes the article, let’s recap all we’ve talked about.

Conclusion

All We’ve Talked About (Recap):

I started with the explanation of a spread and the reason for this was to establish what normalcy looked like, because one thing as a sign that you will first notice is the spread, and it can signify to you that your broker isn’t who they said they were.

Also, I talked about spread hours so you can also know when you can be wrong timing-wise when taking a trade.

I talked about the type of brokerage accounts you can use as a trader and how each of them should fit your present needs.

Then we went to part two which I talked about signs you will notice when your broker starts or has been cheating you, the whole concept of A-booking and B-booking was explained, so also the common strategies brokers use in cannibalizing their clients, by stop-hunting and slipping their orders with the help of the virtual dealer plug-ins.

Then I concluded with the types of brokers out there which are the regulated brokers and unregulated brokers, I talked about the advantages and disadvantages of both and how you can pick from the two based on your present situation.

Now I want to give my two cents!

My Two Cents

I believe it is important to know when your broker is acting funny, that is why I have equipped you with all the tell-tell signs that you are under a broker eating you (Cannibal).

Also, it is important to know when you can be wrong and this is when you take a trade during spread hours, this also could look like a broker cheating you, but at that moment they are within their rights to cause slippage as you are taking a trade during an Illiquid hour. Same as when you take a trade immediately after a red calendar news is released, you can be slipped and even worse, stop hunted and you can’t blame the broker.

Even with all of this, you must know what is fair and what is not, not all unregulated B-book brokers are bad, but you must know what the standards are when you trade with them, to avoid any further damage to your account.

Thank you for reading!