On Forex, there are many tactics and trading systems: from the intersection of moving averages to the search for patterns on the chart and tracking president Trump’s twitter.
But there are other trading tactics. Not very honest. Prohibited by most forex brokers. For the usage of such strategies the broker will not pat you on the head. Using those strategies is likely to block your trading account.
Forex trading is work on a trading system or strategy, providing for a series of profitable and unprofitable transactions. This activity is not without losses, the probability of which increases over time. In its turn, this leads to forced optimization of parameters or a radical change in the trading algorithm. Professional traders perceive this state of affairs as a normal working routine, but novice traders who came to Forex recently or returned some time after the complete loss of the deposit believe in the existence of the “Grail”. This is the name of a conditionally win-win trading strategy in financial markets or a profitable trading tactic that significantly covers rare losses with profits.
The one who seeks will always find. And some beginner traders really find simple and effective ways to quickly and safely increase their deposits, sometimes not requiring deep knowledge of the technical analysis of the charts. Many of them earn significant profits in a short time, but the “success story” ends with a “ban account” by a broker or a forced earned profit write-off. This article is devoted to an explanation of why this is happening and what strategies are prohibited in many Forex companies.
Beginners often drain off a deposit, but they often blame anyone, just not themselves, in particular, blame the actions of the Forex broker for their losses. This forces the novice trader to try their own strengths and trading strategies in many companies. Some traders pay attention to the periodically occurring difference in quotes of the same instrument at different dealing centers. It can sometimes be found even within the same brokerage company if you open the Metatrader4 and Metatrader5 accounts simultaneously. From time to time, especially during the emerging news periods, a trader can notice “slipping” differences in the exchange rates of currency pairs.
Reasons for the mismatch of the rates of the same currency pair with different brokers
- The international Forex market is an interbank system accessible to a narrow circle of people where the exchange rate of a currency pair is translated as a reference value, compiled from instantly updated data of the latest transactions of bidders.
- Each forex broker, in turn, can be both a participant in this market and an intermediary tied to its liquidity provider, which acquires the volumes of its customers. Sometimes the dealing center even works on the principle of “kitchen” and does not bring the transaction to the real market. In all the cases described, the current quotes go a different way, getting into Metatrader through intermediary servers of banks, prime brokers, dealers, etc.
- In the 21st century, technologies have reduced the lag rate to milliseconds, but during periods of strong movements or a skew in real demand and supply from the liquidity provider, quotes of different brokers or terminals may diverge a little.
“Arbitrage” strategy prohibited by Forex brokers
You need to carefully study the information about brokers, choosing liquidity providers and dealing centers, open two accounts and collect empirical statistics of the discrepancies in the rates of several currency pairs, calculating the most frequent discrepancy periods and selecting instruments.
After that, direct trading begins: at the same time, you need to open two multidirectional positions (short and long) at the time of the occurrence of exchange differences in quotations of the same currency pair, followed by closing and profit taking when comparing rates.
Reasons why the Arbitrage Strategy will not work
- Blocking the account or profit of the trader by the broker due to violation of the clauses of the Agreement by the client.
- If the arbitration takes place in one dealing center, the problem will be that the ban on the use of simultaneous multidirectional transactions on the same currency pair is usually prescribed in advance in the conditions for the provision of services.
- Requotes, slippages, increased spreads, etc.
The broker is aware of the problem of lag, therefore, at the time of increasing the update time of quotes or during the release of news, the broker will not execute orders, which will "fail" a trader whose order will work without problems in another place. But even if a trade order is executed, the benefit can be “swallowed” by an expanded spread or a change in the execution price of a market order.
Exchange of information between forex brokers, leading to blocking accounts in both companies.
Security services of forex brokers exchange information about customers by the method of "blind" database comparison, which allows you to calculate active accounts that work simultaneously with two DCs. This is an occasion for a detailed joint study of customer positions. In this case, a trader may violate the Agreement in two places at once and lose service with both forex brokers.
Trading positions carried forward the next day have swap losses/accruals, which depend on the ratio of the interest rates of national central banks. If a trader bought a currency with a larger swap size than the second half of the pair, then every day he will receive a slight plus into his account.
For example, in the case of EURUSD, the ECB's zero rate and 2.75% at the Fed will provide the pair with a daily plus swap. To make money on it, you should open a long EURUSD position and activate the “swap free” service at the same time as the sale.
Swap charges are not so high, but annual profits can reach 30% without any serious risk, so many newcomers like this idea of earning.
Reasons why the carry arbitrage strategy will not work
- Swap-free account may include a fee for transferring or holding a position;
- A broker can “recount” earnings on a swap, reducing or zeroing it for a number of far-fetched reasons;
- If the Security Service "calculates" two active multidirectional accounts, the trader may be charged with violating the Customer Agreement.
Carry Swap Difference Arbitration
Theoretically, the swap accrual, depending on the difference in interest rates of the Central Banks, which currency is used in a pair, should be the same for all brokers, but in reality their value varies greatly, which creates arbitrage situations.
Having selected two brokers with the strongest deviations from the average value of the swap, a trader can receive daily accruals with one of the brokers without even resorting to swap-free accounts.
Pay attention to the table of Forex brokers swaps for the main currency pairs, where you can clearly see the options for receiving positive charges for the EURUSD short, significantly overlapping the write-offs for the long position for the same pair if it is open on an account with another company. You can see this table on the Myfxbook service for example.
Reasons why the interswap arbitration strategy will not work
- Companies are aware of strong differences in the swap size on their accounts, so they actively “calculate” long-term positions. A trader may encounter a write-off of profit from a swap, having received an “adjusted” closing price of the position, where the loss will cover it.
- Also, the broker can unexpectedly close a position, limit the retention period and even the maximum profit per lot. Please note - a strong difference in swaps is found mainly in little-known companies, and if they find a Carry trade during the exchange of information with other Forex brokers, they may well block the account, writing off both the profit and the balance.
Trading on spikes - non-market quotes
Traders who trade intraday pay attention to the frequent occurrence of “hairpins” - sharp price deviations, significantly exceeding the usual range of trades.
Such phenomena mainly occur in the period of low liquidity and are found in peripheral currency pairs. After a strong change, the rate instantly straightens out, and brokers attribute this to a technical malfunction or a big deal that “assembled a glass” - all applications in the market of Sellers or Buyers.
Since such anomalies occur during a period of market calm, they are accompanied by a flat - fluctuations in certain price limits, without the formation of a trend. Therefore, traders set pending buy and sell orders to the size of two or three pieces (200-300 points) to catch this movement, and take profit is placed inside the range.
Why trading on spikes will not make a profit
- If you pay attention to the historical chart, then none of the quotes will indicate the past spike. Brokers remove the “studs”, returning funds to those traders whose positions were unexpectedly closed by triggered stop loss.
- brokers write off profit earned on a non-market deviation and found during the spike proceeding from the trader’s accounts retroactively.
Strong competition in the Forex market forces brokers to conduct various marketing campaigns. In particular, a large number of client traders can be attracted by a no deposit bonus or offer the bonus on the first (or subsequent) deposit. The amount of bonus on deposits may vary from 10% to 100%.
If the bonus is involved in a drawdown or does not require a deposit, the trader can “pick up” its size by opening another account with another broker in order to simultaneously hold multidirectional positions on the same currency pair.
Tactics for Forex Brokers Bonus Hunting Strategy
The meaning of the strategy is to repeat the procedure for receiving bonuses by registering several accounts, and subsequent attempts to "earn", merging one account and making a profit on another. This cycle is repeated until the no deposit bonus promotion ends.
Reasons why the bonus hunting strategy will not work
- Opening new accounts will require a whole range of measures to hide the IP address and attract outsiders to submit unique personal data;
- It is difficult to withdraw profit from a bonus account without fulfilling certain conditions - they usually require opening a certain number of transactions + the size of the trade is important, while the second, reverse position will already be “merged”, and there may not be enough time to open a new one if the broker's offer is limited;
- The bonus is almost always provided by the Forex broker on the terms of a possible cancellation at any time.
Earnings strategy on a fictitious affiliate program
Forex brokers are ready to "share" part of the earnings in exchange for attracting new customers who open an account with the company. A trader can conclude a partnership agreement and receive part of the profit from the commission (spread) from each real transaction of the person brought by him.
Convincing other traders to open an account using a special link in order to identify the account as a partner account and get the right to profit is a difficult task. It is much easier to create a dummy network and “disperse” the reward with a large number of transactions using robots with high-frequency trading algorithms. Theoretically, a “merged” deposit will be less than the share of commission payments.
Earnings Tactics According to Forex Brokers Strategy “Fictitious Affiliate Program”
- Find a broker with a minimum set of documents for registration and high interest payments on the spread;
- Select a fixed spread account type for a fake affiliate network;
- Find and install Expert Advisors with the HFT algorithm (high-frequency trading) on the accounts of fictitious traders.
Reasons why the fake affiliate program will not work
- Any Forex broker blocks accounts and writes off affiliate rewards for revealed fraud. In order to provide additional protection against manipulation with the affiliate program, payments are made after a certain period. Fines may also be imposed on future rewards.
- In addition, the Partnership Agreement may stipulate cancellation and termination of the contract for:
- High-frequency transactions of partners - stipulates the minimum position holding time and the size of the fixed profit / stop loss;
- 70% of the turnover for one of the attracted customers;
- Lack of activity for the most part of referrals, i.e., transactions must take place on each account at least 1 time per month;
- Any coincidence of personal data of referrals in other open accounts (ip, e-mail, etc.);
- Ignoring referrals of control appeals of the company to confirm identity.
Brokerage Forex Trading Strategies Forbidden By A Broker
If the above methods of earning were blocked by a broker for obvious and explainable reasons, then scalping and trading strategies on the news are banned by many companies unfairly.
The “tradition” of getting rid of profitable traders appeared when the profit of many dealing centers consisted of lost deposits. Trading currency pairs was carried out within the companies, for which they received the name "kitchen", therefore any permanent gain of the trader was perceived by the company as a loss.
At that time, the novelty of the Forex topic led to a large influx of new customers, among which a few percent of traders really earned. It was easier for a broker to get rid of these accounts, despite the risk of reputational losses. Later, in order to minimize them, profitable strategies were identified and prohibited in the Client Agreement.
Transactions with a short duration of being in a position with a loss or profit fixation of several points (pips) are called scalping or pipsing. A lot of resources devoted to trading often differentiate these concepts, but the line between the definitions of high-frequency trading strategies is quite blurred.
It is believed that scalping can be carried out not only on minute intervals, but also on 15-minute candles, while pipsing is exclusively trading on ticks - second-time price changes with each new transaction conducted by any Forex trader.
The strategy of high-frequency trading is quite complicated technically and emotionally, with a high threshold of negative results, without a “right to make a mistake”, which can deprive a trader of all daily, already low, net profit. Therefore, its usage requires serious preparation and training.
The reason the broker prohibits pipsing is because of a “follow-on” trading strategy. As in the case of arbitration, the trader uses prime broker quotes with the leading rate change in the terminal of the dealing center.
After calculating the time lag, measured in ticks, and using one-click trading or the Expert Advisor, which allows you to set orders with an automatic stop loss and take profit level of several pips, you can enter before the quotes start moving in the dealing center. Since the result of trading will be known in advance due to the outstripping movement of currency pairs at the prime broker, the strategy will bring profit on most transactions.
The reasons why pipsing will not bring profit at most Forex brokerages
- Forex broker stipulates the duration of transactions or their number during one session, so the profit will be written off for violation of the Agreement. If the trader continues to develop a conflict, the broker may block the account completely.
Trading on the news
The publication of important economic indicators is always associated with a surge in volatility - the appearance of candles with an abnormally high price range. The impulse surge allows the trader to place two opposite orders with a pre-set take profit. If profit fixation levels are set correctly, most orders placed by this tactic will close with profit.
This tactic allows you to work without a forecast of market reaction to the news.
Reasons why Forex brokers do not allow news trading
- A short time of holding the position may violate the terms of the agreement with the broker;
- At the time of the news release the spread growth in the terminal will open trades with slippage;
- Requotes - trading delayed for several minutes during the publication of the news;
- Cancellation of triggered or closed orders without explanation or under the pretext of a technical failure.
Volatility trading with the usage of maximum leverage
The volatility trading strategy is one of the options for tactical response of traders to the prohibitions of Forex brokers to trade on the news.
To get a guaranteed profit regardless of the movement of a currency pair, a volatile instrument is selected, for example, USDJPY. A trader opens two accounts, choosing the conditions for providing a maximum leverage of 1 to 1000. Next, two multidirectional positions are set for the same currency pair until the news or publication of a significant political event, the opening of the European session.
Having previously calculated the take profit covering the losses from the drain of one of the deposits equal to each other, the trader earns (usually + 100%) on the impulse take-off of quotes on one account, while the second is reset. This is made possible by the large shoulder size.
Reasons why Forex brokers do not allow volatility trading
- A broker may prohibit trading the entire size of the deposit with a high level of leverage;
- At the time of the news release, the movement of quotes on two accounts can change in different directions;
- The broker can write off profits due to an alleged technical failure;
- Traders can be convicted of opening the opposite position in another company and block both accounts.
Catching Gaps - “Price Gaps”
The strategy of multidirectional trading on two accounts opened with various Forex brokers makes it possible to use a leverage of 1 to 1000 to catch gaps - price gaps that arise in the first minutes of the market opening.
This is a rare occurrence for major currency pairs, which can only be seen on Monday if significant events have occurred during the weekend. But for many national currencies with a weak economy or a short working day, gaps are a constant attendant attribute.
A trader uses the tactics already described in the volatility trading strategy, with the only difference being that a multidirectional position is opened in the last seconds, before the end of the session.
The price gap that arose at the opening of the next day “kills” one of the deals, generously covering the loss with profit in another account.
Reasons why forex brokers do not allow “catching gaps”
- It is difficult enough to find a broker that allows you to trade “peripheral” currency pairs with high leverage. If the company agrees to such conditions, then it limits the possibility of the transaction to 100% of the deposit. In the absence of this obstacle, the trader may fall into the trap - the position will disappear from the terminal if the gap is planned in the positive direction. It is not difficult to calculate its direction several hours before the start of the session, therefore the broker purposefully cleans the premarket.
To avoid blocking the account or writing off already earned profit, the trader should avoid strategies that use inconsistencies or any other obvious “holes” in the operation of the broker's servers. If the company could not technically cover these loopholes, then they are closed at the legal level. Therefore, you should carefully read all the clauses of the Agreement with the Forex broker and achieve a full clarification of incomprehensible provisions.
Profitable strategies based on the found algorithms are best implemented in partnership with large and significant brands that allow scalping on special terms. Finding the opportunity to trade on the news without requotes and slippages is more difficult, because this problem arises when trading in any markets.
Author: Kate Solano, Forex-Ratings.com