Ever counted how much spread your broker charges? Probably the primary thing that traders check before opening a trading account is Spread.
Why does spread matter a LOT in forex?
You might have heard price manipulation by brokers. Here in this post, you will learn how brokers are guilty of forex spread manipulation.
Brokers are responsible for forex spread manipulation. They widen up the spread to increase the trading cost. They can change the price feed to generate artificial spikes in the market. They are also found guilty of slippage. That’s really unfortunate!
That’s why understanding every type of broker is a part of forex education. Half of your success here is in the hand of brokers. If your broker is showing you the spread live on the website, it’s fantastic. But if he is hiding spread information, he might manipulate it.
So, read this post to discover how to avoid spread manipulation.
What Is Spread and Why Does it Matter in forex
Spread is the cost of each traders’ transaction or the difference between the bid and ask in pips. This cost is different for different brokers.
There are brokers under the ECN system who charge no commission in the tight spread but they charge traders against every transaction or execution. The cost of the spread is different in each currency pair.
To understand how the spread works in the forex market understand the example. Suppose, a trader wants to open a buy position in EUR/USD at 1.2001. But the broker executes the order at 1.1999. The difference of 1 pip or the cost of 1pip will go into the broker’s pocket.
In this way, the broker makes money by executing a price order a bit lower. Though it is fine and legal from the trading convention as they will inform you before using the trading platform. So, nothing is hidden.
Spread manipulation is the way where forex brokers trade against you.
3 Tricky Ways Brokers Manipulate Spread in Forex
Though brokers are smart enough they earn by widening spread for long-term trading positions. They also earn by other means, which is near to cheating.
Below are three tricky ways that brokers often use for manipulating spread…
Spikes are a natural phenomenon in the forex market as prices are always changing. Sometimes price suddenly goes up and then moves down. You can see this phenomenon in the charts. Few scam brokers deliberately widen up the spread to create artificial spikes.
As trader totally depends on the broker’s price feed. They seldom compare sudden price change with another broker’s website. This way, traders lose their capital quickly. In turn, brokers make money. This happens when the market is highly volatile.
Few scam brokers are also found guilty of slippage in the fixed spread. When prices fluctuate highly due to some news or reports, brokers fail to maintain fix spread. They trickily change the price a bit at which the trader enters the trade. In this way, they manipulate spread and make money.
Though this manipulation is extremely slight and unnoticeable. As a result of this slippage, the new entry price will be different from the intended one.
In the fixed spread, scam brokers earn by requoting price. This happens when the market goes up and down fastly. To adjust well in market situations, brokers tend to widen the spread.
When the trader opens the position, the broker blocks the trade or slows down the server intentionally. When the trading positions open, he will offer a new price that is requoted. This new price is probably worse than you expected.
How to Avoid Spread Manipulation in Forex
Though the widening spread is not manipulation in itself if your trader informs you already. But if he is doing wrong tactics behind the scene using software, he is manipulating forex illegally. There are two types of spread in the forex market, fixed spread or variable spread.
To avoid spread manipulation follow the tips below:
Say No to High Spread Brokers
If your broker is offering a high spread, he might be charging high rates on long-term trading positions. Only those brokers are honest who offer a low spread. When brokers widen up the spread the main intention behind is to lose the capital of the traders.
To avoid this spread manipulation, choose a low spread regulated broker like ICMarkets.
Say Big NO to Variable Spread Account
The chances of manipulation are higher with variable spread account. Traders are unaware of how much brokers charge for a spread with the variable spread. Sometimes they charge 2pips and sometimes more than that. That’s why say strong YES to fixed spread accounts.
Say YES to brokers who Publish Spread Live
Some brokers publish spread live on their websites. If you choose such brokers, the chances of manipulation are quite low. ICMarkets broker is one of them. If you want to avoid scams, do proper research and start your journey with those who are transparent.
Can Forex Spread Be Manipulated
In simple words, YES brokers can manipulate spreads in forex. However, it is impossible to manipulate spread in a highly liquid market. Though it’s easier for the broker to manipulate spread in a low liquid market.
No commission brokers make money by manipulating spread. They charge traders against every pip they trade. That’s why understanding the role of spread is important here.
The spread is the difference between the BID and ASK price quoted in currency pairs calculated in pips. For example, the Quote price of EUR against USD is 1.1500 – 1.1502 it reads as follows: EUR/USD = 1.1500/1.1502
The difference between 1,1500-1.1502 is 2, that is PIP. Here the spread is 2pips.
Frequently Asked Questions (FAQs)
Can forex brokers manipulate prices?
Yes, they can manipulate prices by causing artificial spikes, slippage, stop loss hunting, and unusual widening of the spread. However, the number of such scammy brokers is limited. Always do proper research and start your journey with authentic brokers.
Why does the forex spread widen at 10 pm?
At 10 PM most of the market is near to closing time. At this moment brokers widen the spread as there is low liquidity in the market. Because of this, the chances of slippage are quite high in trading. That’s why newbies should not trade at 10 pm.
How does spread-widening affect your trade?
Spread widening can directly affect your trading cost. The wider the spread, the higher will be your trading cost. The lower the spread, the lesser will be the trading cost. It is ideal for professional traders to go with fixed spread accounts.
In this article, you can understand how brokers manipulate spread in forex. You need to be smart enough to anticipate all manipulation tricks that brokers and market makers can use against you.
I would advise you to always compare the price feed of the broker to the price feed of another website. If you find the marginal difference, complain to your broker and ask the reason. It’s good to close your account with scammers when you know your broker wants you to lose.
If you are trading with no commission brokers, always chose fixed spread accounts. This way your spread will be fixed and you will be aware of it. What is your opinion about your broker? Do write to us whatever you feel!
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