Anyone who has been trading the Forex for any length of time can’t help but have heard rumors about “spiking” or “stop loss phishing”, but no one in the industry that I know of has been willing to come forward to clear the air, at least until now. According to at least one source, investor stop loss orders are frequently taken out not because the market has turned but because such takeouts serve the dealing desk broker’s financial interests. An experienced trader, a personal friend of two years, had an extended conversation with a trading platform programmer several weeks ago who confirmed what most of us have suspected for a long time - that dealing desk brokerage firms (those offering fixed spreads) routinely spike rates to cover imbalanced trades, meet liquidity requirements, and/or to maximize profits trading their internal accounts. According to this insider, the practice will undoubtedly continue because it’s difficult, if not impossible, to prove.
According to him, to catch a dealing desk broker spiking rates, governmental agencies like the Commodity Futures Trade Commission or the National Futures Association would have to monitor two platforms - one that displays the interbank trading action the broker is being fed (and that varies slightly from one dealing desk broker to the next) and the rates the dealing desk broker offers its traders, a daunting task to be sure. To date, he reported, neither agency has taken action to monitor those internal platforms.
The willingness of any governmental agency to pursue a problem is pretty much a function of demand. If there's a public outcry, something will be done about it. If not, it will be ignored like so many other problems in this world. If you’re interested in getting them to investigate the problem, you can submit your concerns to one or both. Text links to their consumer complaint forms are provided below. If you elect to submit a complaint to NFA, you’ll have to provide a broker’s NFA ID number.
Commodity Futures Trading Commission
National Futures Association
The only way I know for a trader to avoid spiking is to trade through a broker offering a non-dealing desk trading platform. Instead of creating and managing an artificial, off-exchange market where traders are offered a single quote for each currency pair, non-dealing desk brokers facilitate trading between spot traders and participating banks. Traders see and trade against multiple quotes - the same quotes dealing desk brokers use to post rates that have been adjusted to include their fixed spreads.
Trading through a non-dealing desk borker, spiking is non-existent. In the first place, the facilitating broker doesn't trade against his clients so he has no reason to spike them. In the second, participating banks do not have access to the trader's positions - specifically their stop loss orders.
