Warning: This article is not for everyone. It has been written from the perspective of a former trader that has experienced some or all of the possible ways a broker manipulates the trading conditions to screw the trader.
I have deliberately taken a “raw” approach in writing this article because I’m not writing this piece to please anyone. This article is based on my own findings while I was a full time trader as well as some shocking revelations I received from the suppliers to the world the industry when I was setting up this brokerage.
I am upset with the industry. I am mad at the scammers that stole my money when I was trading. I am enraged by the continued propagation of more scams targeted at naive traders. This has to stop. Here’s my attempt to tell you the truth. Verify the facts. Do your own research. Figure it out. Challenge me if you want to but the truth cannot remain hidden for too long.
My brokerage will probably be attacked for disclosing this information. But my conscience does not allow me to sit tight while I see this sh*t everywhere in the industry.
So here’s how you, the trader is being robbed blind in broad daylight
Price Level Hunting
As a new trader (or even a seasoned one), you’ve been taught to trade with set stop loss and take profit levels. Which is good, but what you don’t know is that the broker has a very dirty trick up his sleeve that will make your skin crawl when you realise how he is using what the industry taught you for his profit.
To understand this trick, you need to pay solid attention and walk with me.
First, lets understand how do most novice traders trade.
They use indicators such a RSI, B/Bands, Stochastics and Moving Averages to figure out when to enter and exit a trade. Lets use the RSI for an example. Typically many traders enter a trade as soon as RSI reaches 80 (Sell) or 20 (buy).
As soon as you enter into a buy or sell trade. Your broker sees it. He also sees the TP and SL levels you have placed in your order.
Take a look at this chart.
Like a good trader, you followed the education you’ve been given by the industry and entered at a good level. You placed a buy order for 1 lot (middle red line) and placed a stop loss (bottom red line) and a take profit (top red line).
Now here’s what happens when the broker decides to pull the dodgy on you.
Has this ever happened to you? You thought that it was just a spike in the market due to some news or some institutional buyer with fat fingers? No. This is your broker who gave you the proverbial bunta.
Yeah but you know they do it. However, do you know how they do it?
Here’s how. There’s no-one sitting there doing this manually. There’s a plugin called the “Virtual Dealer” that is sold on the open market by third party developers who built plugins for the Metatrader platform. I will discuss other vile aspects of this pestilence of a plugin in the next heading but suffice it to say that its an AUTOMATIC system – meaning you can’t escape it. If your broker has a virtual dealer plugin (which EVERY SINGLE DEALING DESK BROKER DOES) then you’re up sh*t creek with no paddles. This will happen to you… no matter what you do.
Even the devil himself would have cringed when the first version of this plugin was made available for the Metatrader platform. Metatrader is the most commonly used Forex trading platform in the world. Its not the best but its everywhere. As a trader, you can’t avoid it.
Every broker, when they sign up to become a broker have to get an MT4 or MT5 license from Metaquotes Software, the guys who produced MT. Typically you don’t deal directly with MT but through your liquidity provider or broker sponsor or whoever is helping you setup the brokerage. That intermediary is the one that gleefully gives you the option of whether you wish to run a “B-Book” brokerage or an “A-Book” brokerage.
What? What’s the diff? Well the diff is this:
A-Book means a real ECN or STP broker such as us.
B-Book means a dealing desk.
These scumbags then go ahead and make a presentation to you about the benefits of running a B-Book and how it is just “the most powerful money making machine on the planet” – you bet it is…
In a B-Book brokerage what happens is that instead of your trades being passed onto the liquidity provider (which is what is meant to happen), it is handled internally by the brokers own dealers. These dealers have much more information about the price movement and control over the trading conditions compared to you. They can, at the flick of a switch turn the market against you (as you saw in the example above) and pocket the loss you make as their profit.
Now as technology has evolved, brokers have become more and more greedy and decided that they no longer wish to maintain a desk full of dealers messing with your trades so they got developers to build a “Virtual Dealer” plugin that fits into MT platform and does everything a real dealer would do…just that its all automated now.
I was offered this plugin by someone I hired to consult with when I was setting up the Manhattan Global Markets brokerage. The cost was a mere USD 8,000 one off. They were going to charge me $3 for every lot traded through this plugin. The guys even presented me with a spreadsheet of calculated numbers based on 300, 500, 1000 and 2000 traders in the brokerage. The numbers were mind-boggling. So why didn’t I take it? Because I have some conscience left in me. I don’t need to make millions. I am happy to make whatever I make from the spread I give to my traders. This is risk free for me and I don’t have to hate myself for literally stealing people’s hard earned money and look myself in the mirror the next morning. I will sleep better and earn the respect of my peers. That’s why I didn’t take it.
Do you want to know what else this Virtual Dealer plugin can do?
Keep reading or find a developer who sells virtual dealer plugin and call them to ask yourself. It’ll be fun. Don’t you think?
The PAMM Scam
What is PAMM?
PAMM stands for Percentage Allocated Money Management. The industry has ways of giving complex names to simple things. PAMM is nothing other than a money management system where a trader trades on an account which is made up of money from many people’s pockets – like an investor account. The rule is the trade or the money manager puts up some of his money and trades on the account. If results are good, the brokerage will then promote this trader’s account and ask other investors (brokers’ clients) to make deposit under this account.
The broker shows the charts, the performance of the PAMM account and everything else to convince you to put your money into that traders’ account. Sounds all simple and fair so far… no?
WRONG. Except that the PAMM account that is being promoted is not real. This was a shocking revelation for me. A Russian MT developer tried to sell to me a PAMM add-on for MT. I thought this was an Add-on that would let me use the PAMM method on my brokerage to attract high performing traders to create PAMM accounts and then help my traders win. I was so wrong. The guy showed me a demo and he kept referring to the Virtual PAMM account and I asked him what he meant by “Virtual”. He said, “well, the PAMM account is essentially a demo account that the broker controls” and can manipulate the trade summaries, results of a given period of trading etc. to show great returns to attract investors.”
So I asked him what happens when the investors realise that they’re not really making money. He said the most unbelievable thing. He said “you don’t let them lose right away. You must let them win for one or two months and encourage them to invest more. Then in the third month, you can turn on the virtual dealer plugin and they will lose everything…then its easier to blame it on market movement…” and then he asked me “you have a good terms of service agreement right? Because if you don’t I can give you a template you can use to protect yourself legally in case traders want their money back…”
Can you believe this? This is FIRST HAND experience I’m talking about. Not just here-say. This Russian developer showed me his portfolio and there he had logos of the brokerages that are using his software. The cost of the software is USD 2,500 one off and 10% of monies earned every month. Can you believe it can be this cheap to have a solid system to scam traders?
Be very cautious when investing in PAMM accounts. You never know who’s on the other side. If you have no way of determining the counter-party, then start off with a ridiculously small amount like $50 and wait for 6 months. Unfortunately, that’s the only way.
Slippage, Latency & Execution Delay
Dealing desk brokers have an allergic reaction when they see you’ve figured out a way of making money from the markets. Particularly they hate high frequency traders, algorithmic traders, scalpers and most of all latency arbitrage traders. Why? Because all these strategies have a high win rate in general.
Enter the SLED protocol or Slippage, Latency, Execution Delay protocol.
There is a manual out there that talks about “how to protect your brokerage against smart traders”. That manual (which I have seen with my own two brown eyes) provides a “best practices guide” to understanding how these traders can be stopped dead in their tracks using the tools available to a broker.
This is also something that is handled by the Virtual Dealer Plugin in some brokerages.
How does it work?
The SLED protocol has systems that detect the speed and ratio at which your algorithms or your Eas are placing orders. They then calculate the win rate. Based on all this, they analyse your dependency on slippage or execution time for a successful trade.
If you’re trading the 1 hour candle and holding positions for a long time, then the SLED protocol is not interested in you. The virtual dealer or the Levels manipulator will catch you out. The SLED protocol is mainly for traders that rely on fast execution and low/no slippage for a high win rate.
One such trading strategy is latency arbitrage. In order for your latency arbitrage EA to be successful, you need very low latency and almost no slippage. Only then you’re going to make money from Latency Arbitrage.
I’m a big fan of Latency Arbitrage and have used that strategy for a long time but with little success,…why because of 3 Russians who have built an anti-arbitrage plugin for MT. They now have a way of spotting an arbitrage trader (not just latency arbitrage but other types of arbitrage too) and stop them from winning.
There’s an Anti-Arbitrage plugin, an anti-scalper plugin, and many other plugins to combat smart traders. If the SLED protocol cannot easily determine which type of trading style you’re using, then it falls back to its default setting which is to either force manual execution of your trades (very unlikely) or add a permanent execution delay of X milliseconds for every request you send.
Imagine being a trader. You have an algo that you saw doing really well in demo account. You went live and the sucker doesn’t work anymore. You go back and check your algo and in the process you keep changing your settings until you win. After some time your algo is well and truly stuffed because you don’t know how many changes you’ve made and which change had a positive affect. See how the SLED protocol gave you the bunta?
Why am I telling you all this?
So that you will know the difference between our brokerage and that of the ones that have stolen your hard earned cash. We have told you openly some of the ways brokers manipulate you. Now the cat’s out of the hat. We can’t use these tactics against you even if we wanted to. The internet is a small world these days and our reputation is everything to us.
Furthermore, we DO NOT have virtual dealer plugin or any of the plugins and add-ons I have exposed in this post.
We are designed for algo traders and high frequency traders that have too many forces against them in the industry today.
From one trader to another…all I want to say is this:
I setup the brokerage because I didn’t want to lose any more of my family’s hard earned money trying to win in a system that is rigged and designed to steal from me. I built the brokerage for myself first and for other traders like me next.
So if you’re a serious trader, you will know the difference once you trade through our brokerage. If you’re too scared or skeptical to even try then I wish you all the best in your endeavors and I hope you find a good brokerage that will do justice to your efforts.