Today I want to share to share with you some bad forex broker habits or practices that you might want to look out for as you go about picking a broker to open an account with. If you find that your forex broker engages in any of the practices listed below then you may want to consider changing brokers.
a) A having a Forbidden strategy clause
Some fx brokers will explicitly forbid you from engaging in some trading strategies in their terms and conditions. They may forbid you from pip hunting which is simply a strategy of making quick profit by scalping or they may require you to hold a position for a minimum amount of time before executing a trade.
The problem with such rules is that at times you may have missed reading such clauses in the fine print while opening the account or be unaware of the existence of such a thing. Then on one occasion in you trade you happen to violate one of these clauses in which case the broker would be justified in withholding or confiscating any profits you had made from that trade.
You could end up losing a substantial amount of money.
b) Having too many requotes
This is where the trading platform will show a trader one price and then when he goes to deal on it he is made to wait. Then the trader is shown a different price from the one he had selected to deal on, this price is usually worse than the one initially selected.
In a fast market this may happen a few times but where the markets are relatively orderly this should not be the case and may end up costing the trader a significant amount. Some brokers will do this so that they can make more money from their clients so ideally you should try and find a broker with no requotes.
c) Too much slippage
Slippage is where an order is not executed by the broker at the price that the trader had selected but is instead executed at a different price. In most cases it is usually a stop loss that is executed at a much worse price than the one chosen initially.
Again while this does occur every now and then it might be something to watch out for as some brokers will do this deliberately to make money from their clients.
d) Front running trades
This is where a forex broker buys ahead of a large order or group of orders on behalf of his firm’s account. Where for example they buy before a big buy or sell order is placed.
Such behaviour may cause the clients orders not to be executed as such behaviour usually results in pressure on the market which may go against their client’s interest of having their order fulfilled.
e) Stop hunting
This is where an fx broker deliberately moves the market either on their trading platform or in actual fact so that he can execute a stop loss and therefore make money from the client losing money on a trade.
Undoubtedly there may be more bad practices to watch out for but these are just some of the most common ones to watch out for.