Blatant Price Manpulation by Market Makers

A short while ago I wrote about the differences between the two main forex broker types, namely ECN brokers and Market Maker or Single Counterparty Brokers (see here). At the time I said that the problem with a Market Maker broker is that they’re taking the other side of your trade and hence there’s a huge conflict of interest and a great temptation for them to tweak their prices in their favour. There was a classic example of this yesterday during the Crude Oil Inventories release. I was following the Crude Oil CFD offering on an unnamed brokerage platform. Now whilst this broker’s forex quotes are a proper ECN (which is why I’ll trade with them), their CFD isn’t though I don’t know who is providing the quotes on their platform. Anyway, take a look at what happened as the market approached the post-release lows.


Crude Oil CFD


See that huge spike on the lows? I was watching the price there and the spread, which was a fairly tight 2 or 3 ticks suddenly went 20 wide as the quote provider fished for stop orders below the low. It did this two times in quick succession and then it was back to 2 or 3 ticks wide again. Compare this with the Crude Oil futures chart:


Crude Oil futures chart
FYI the two other broker CFD’s offering that I had accounts with (OandA and AxiTrader) were both fine with no spikes. I’ve said it before and I’ll say it again: don’t trade with a single-counter party/market maker broker on small time frames as the temptation may well be too great for them. I should just qualify this slightly: it does depend on the broker, some market maker outfits offer fixed price spreads and in general they won’t try this sort of thing on. Some of the better brokers will value their reputation too much to try it on as well so you may find that your broker is OK. You have been warned though!
For my part, I only trade CFD’s occasionally and fortunately I wasn’t in a position at the time. I’ll never trade Crude Oil CFD’s with this broker’s platform again though.