Rigged MarketMaker CFDs

[Duffenator]

Lots of people who trade CFD's think that when they are taken out of the market by a stop and then the trend proceeds in the original direction, that the CFD provider has sort our their stops. I have suffered the same inconvenience, but have since adjusted my technique. I believe that most of the time it is nothing more sinister than an educated trader knowing where the stops are likely to have been set by us plebs, and taking advantage of it.

It is bad for us, but I take my hats off to these people as they possess a very useful skill.

HOWEVER- today, when trading the AUS200 cash cfd, I saw something to lead me to believe otherwise. Now, before I go on, I am happy for someone to prove me wrong on this - in fact I would be stoked!

I believe this to be a bit of rigging by my marketmaker because I also watch the actual SPI contract. If you look below, the chart on the left is the CFD and the right is the SPI. You can see that the price drops away rapidly, before it starts to consolidate. And it is in this consolidation that I believe the rigging occurred. You can see that at no stage does the price of the SPI rise much above 3530. 3530 is a level equivalent to 3520 on my CFD chart. However, if you look at the CFD chart, the price rises significantly above 3520! I should also say that the green candle soon retraced and moved back below 3520 after the screenshot was taken!

Can anyone suggest a reason for this difference in price move? Could there have been a large spread in the bid/ask price of the SPI at this point?

 

[Gundini]

My experience with the Aus200 index CFD was that it had no basis for the movements, relative to the SPI.

I came to the conclusion it was very difficult to trade. It seemed wherever I placed my stop/sell order, the Index would act like a magnet until it triggered, knocking you out of the trade with a loss.

Also, the more quantity you purchased, or doubling down to average down, the more of a target you seemed to be for the marketmaker. The marketmaker put you in so much pain you just had to get out, then, it would turn around and move back towards the SPI.

At the end of the day/beginning/overnight it would usually reach parity with the SPI.

The best way it seemed to trade the Aus200 was to trade the opposite direction to the trend. So, if you thought the trend was Long, everyone else usaully did as well, therefore, by placing a short, you had a better chance at profit while the marketmaker tried to squeeze out the Longs.

To me it was a game, that usually ended up in a loss. This may not make sence to those who have not traded the AUS cfd, but this is my experience, and the only way I would play this cfd is either as a hedge, or on a longer term view disregarding short term movements.

 

[skc]

May be try GoMarkets. Sounds like they use real numbers. See thread here

https://www.aussiestockforums.com/forums/showthread.php?p=373204&highlight=gomarkets#post373204

 

[Duffenator]

I have to say I haven't found it as difficult as that Gundini...but that being said, I know that feeling.

Until this point I have been relatively neutral about whether marketmakers seek out stops or other "untowardly" practices. However, in this instance, with this provider, I can see no reason for the spike. I even started up a demo account with IG and had a look at their 1min data - It doesn't show the spike in price that I got with my provider!

TH - you have asked for proof of marketmarket makers rigging price action...I think this may be it. But as I said in my first post - I would like to be proved wrong....

 

[Duffenator]

May be try GoMarkets. Sounds like they use real numbers.

I am leaning more and more towards trading SPI directly...

The aus200 cash CFD, with my provider is based on "fair value". I have asked them what this means and was told it is affected by various factors - including time. Time? how does this affect price? maybe we should all add indicators to our charts showing the change in price over time...oh hang on a min - isn't that called a price chart?

Anyways, I have asked for the formula they use for calculating price and I will be getting a call from their deal desk. No doubt to give me the run around...but if anyone is interested in knowing how price is calculated on an index CFD - might be worth your while staying tuned to this thread! And if your not interested in that, might be worth a laugh at all us CFD index traders!

 

[James Austin]

when i've paper traded the index cfd i've been surprised how rountinely my paper stop has been hit.

2 conclusions came from this experiment:

1] i need to improve my entry
2] that's just intraday index trading


the cynic in me would like to think MMs may be up no good, but these days i think its more a reflection of my trading skill

 

[cogs]

Duffenator,

There is nothing new here as much as some would like to palm it off as "poor trading techniques, poor psychological planning, " etc.

This happens quite often. Some would say 'why would they bother'? Well simple, 'a lot of a little makes a lot'. Many have become very wealthy through this simple rule. If have a dozen small stops were taken out with various clients throughout the day, they have their wages, just like any employee or business. They simply don't just earn from spreads.

I am sure TH with have plenty to say here.

 

[Cartman]

I am leaning more and more towards trading SPI directly...

The aus200 cash CFD, with my provider is based on "fair value". I have asked them what this means and was told it is affected by various factors - including time. Time? how does this affect price? maybe we should all add indicators to our charts showing the change in price over time...oh hang on a min - isn't that called a price chart?

Anyways, I have asked for the formula they use for calculating price and I will be getting a call from their deal desk. No doubt to give me the run around...but if anyone is interested in knowing how price is calculated on an index CFD - might be worth your while staying tuned to this thread! And if your not interested in that, might be worth a laugh at all us CFD index traders!

Hi Duff Could be an arbitrage op if you have quick enough fingers Name of Provider please?

 

[Duffenator]

the cynic in me would like to think MMs may be up no good, but these days i think its more a reflection of my trading skill

I agree - I used to think the same thing. But I found it was just in my head. I would remember the bad, i.e, when I was stopped out before a potentially good profit. However, I would forget the times where I was within a point of being stopped out, but wasn't, before making a good profit. Once I quantified this, I no longer had any worries.

Until today, I had nothing that seemed to provide solid evidence of what a lot of us suspect. However, the thing with this instance, is that I can find no reason in the underlying price for this spike. It wasn't there in the SPI, it wasn't there on IGs 1 min chart.

Furthermore, the level of the price spike was pretty much the only opportunity anyone would have had to short on the earlier downward leg because the price move was extremely fast.

I know it is nothing new, but I remember reading in another thread, that someone wanted some proof of dodgy moves in market maker cfds...and as far as I can tell, this could be it!

Cartman - it is GFT. good luck, its something I'm going to have a look at!

 

[James Austin]

Until today, I had nothing that seemed to provide solid evidence of what a lot of us suspect. However, the thing with this instance, is that I can find no reason in the underlying price for this spike. It wasn't there in the SPI, it wasn't there on IGs 1 min chart.

duff,
MMs "may" fish for stops, but i dont think so. And what you've got is just one example, not enough proof

better evidence would be futures/cash discepancies right across the chart, or across a period of time, afterall there are stops everywhere that are worth seeking out

 

[prawn_86]

My biggest question as to if MM actually hunt stops would be "Why my stop?"

Theoretically, people have stops all over the place so why would they just hunt yours, or those that trade in a similar style? It just seems a bit paranoid to me

 

[chops_a_must]

They operate off the spreads, not the last price.

I think we've been through this all before...

 

[Wysiwyg]

Duffenator,

This happens quite often. Some would say 'why would they bother'? Well simple, 'a lot of a little makes a lot'. Many have become very wealthy through this simple rule. If have a dozen small stops were taken out with various clients throughout the day, they have their wages, just like any employee or business. They simply don't just earn from spreads.

I am sure TH with have plenty to say here.

Maybe he scalps to beat them at their own game.

I have no doubt stops are hunted but for the life of me can never understand why little `ol me.

The most blatant was when I moved my take profit stop away 3 times and it kept coming.After third move I stayed and market went over by one pip (got records to show) and dropped over 800 pips over weeks after that.I just had to be squeezed out and THAT my friends is what I have experienced.

Bucket shops are for newbie suckers (like me) before they wisen up to better service providers and methods of trading.

There is nothing new here as much as some would like to palm it off as "poor trading techniques, poor psychological planning, " etc.

Answer ...

In reality most forex traders are under-capitalized. This forces them to trade with too tight of stops to protect their already too small capital. Unfortunately, with a stop that tight, the broker doesn't even really have to do anything. The market can just hiccup and you'll be taken out of the trade.

Try an ECN ...

ECN is an acronym for Electronic Communications Network. A Forex ECN does not operate a dealing desk but instead provides a marketplace where multiple market makers, banks and traders can enter competing bids and offers into the platform either inside or outside the spread, allowing traders to trade against each other and with multiple counterparties. A trader might open a trade with liquidity provider "A" and close it with liquidity provider "B", or have the trade executed against the bid or offer of another trader. Participants of the ECN send in competing bids and offers into the platform and the combined volume is usually displayed to traders at each price. Orders are matched between counterparties, usually for a small fee.

 

[Duffenator]

duff,
MMs "may" fish for stops, but i dont think so. And what you've got is just one example, not enough proof

true, one example is not proof...but, what it shows is that the price was "significantly" different on the marketmaker compared to the SPI which it is based in at least one instance.

 

[Wysiwyg]

Trade anonymous (STP) and take the human factor out!

 

[Cartman]

Furthermore, the level of the price spike was pretty much the only opportunity anyone would have had to short on the earlier downward leg because the price move was extremely fast.

Cartman - it is GFT. good luck, its something I'm going to have a look at!

Thanks Duff Dont have an acc with them so cant comment on specifics If the price moved real quick most cfd mobs wont let you on even if you have superman fingers so pointless really Your chart does look to have an anomaly though

 

[skc]

true, one example is not proof...but, what it shows is that the price was "significantly" different on the marketmaker compared to the SPI which it is based in at least one instance.

There is actually no need to prove anything. The moment you sign up to a MM you have decided that they can screw you however they want. This is a clause from one provider's PDS. Check your provider and chances are they have similar provisions.

3.19 Clients may be treated differently

CMC Markets in its absolute discretion may quote different prices, and charge Commission, Financing Charges, Rollover Charges and other charges at different rates, to different clients.

 

[Duffenator]

Guess I should also say that I was already out of the trade, so I had made my profit, and that this isn't a case of me being "just" stopped out and feeling bitter at the world.

 

[Duffenator]

Thanks Duff Dont have an acc with them so cant comment on specifics If the price moved real quick most cfd mobs wont let you on even if you have superman fingers so pointless really

...and as I have found GFT loves to re-quote...it even re-quotes it's re-quotes!

SKC - I have read that also. And yes it is in the PDS of GFT - I actually asked them about that the other day and was told they are referring to better brokerage etc if you are a large client...I laughed on the inside and thought "yeah right".


If a marketmaker can just move the price around - I think that the ATO should class trading CFD's as gambling and not take half our profit....but that is a totally different subject and will derail any discussion - so forget I said that! lol

 

[prawn_86]

If a marketmaker can just move the price around - I think that the ATO should class trading CFD's as gambling and not take half our profit....but that is a totally different subject and will derail any discussion - so forget I said that! lol

They do, hence why no CGT on CFD profits.

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