For those unfamiliar with the practice of stop hunting, I thought it might be helpful to distinguish between global stop hunting and targeted ones. One is a function of the free market, the other constitutes unadulterated manipulation. Banks who feed quotes to FCMs don't target specific trader positions unless the trader has signed up to trade through the bank's dealing desk. For the most part when they had a need to fill, they boost/cut rates on a global basis and the spike seen is going to be normally tied to a predetermined point above and/or below a calculated support or resistance point. That's the very nature of programmed trading and a function of the free market.
When it comes to the dealing desk, however, stop hunting is an entirely different matter. If a broker routinely spiked traders using a global tactic, they'd quickly put themselves out of business because everyone would know they're doing it. What they do, instead, is target particular trading behaviors - highly leveraged accounts, small or large lots, and news and non-news trading periods to name just a few. Targeting enables them to use the tactic without a great deal of concern for discovery. When confronted by an inexperienced trader, they can frequently blow enough smoke to convince him/her (the trader) that the spike was caused by a temporary computer glitch beyond their control. However, a savvy trader raising the same concern is issued an immediate refund and, I'm guessing, his/her account is flagged so it doesn't get targeted for future takeout.
My FCM programmer acquaintance pointed out the other day that only the really foolish brokers spike quotes more than 10 pips - anything greater is too easily documented. There are, however, occasions when stop hunting goes well beyond that as illustrated by the experience of one of the NDD forum's members. The incident is recounted at the bottom of page two of the thread. If you wish to see it at the top, just select the Hybrid display option in the Display Modes tab on the right hand side of the menu bar below and to the right of the “Post Reply” button. Otherwise, go to the bottom of the thread on page two.
Since the squeaky wheel gets the grease, I highly recommend traders raise the roof when they catch or even think they've caught a broker stop hunting them. More important, I hope everyone will document any incident and post it on the forum so other traders can make a more informed decision when it comes to broker selection.
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The NDD forum
Recommended Additional Reading
Think You've Been Trading the Forex? Think Again
Advantages and Disadvantages of Non-Dealing Desk Trading
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