Thursday, November 28, 2013

Euro back to trend | Beware the price spike broker

The Euro against the US dollar (EURUSD) is back above the level at which there was a collapse on news out of Bloomberg that two unnamed officials had reported that the possibility of making the overnight deposit rate negative was under discussion by the European Central Bank (ECB).

It is instructive that, even on its way back, the rate found resistance at the point where the collapse had started on Feb. 20th, when the report appeared. Having cleared this level, it is now using it as support.

It was a remarkable incident. While Bloomberg is an important entity in market commentary, this story was not picked up anywhere else. Thus, an isolated news report, based on the comments of nameless individuals, was able to move the market in the most widely traded currency pair on the planet in a significant manner. That the move was almost immediately reversed only adds to the wonder at the whole episode.

Beware the price spike broker

Having made the decision to code the Silver Trigger for the Metaquotes MT4 trading platform, it was necessary to open an account with an MT4 broker. So we tried a few, to see which would be best.

The first chart above is from the MT4 platform of one of these brokers. It shows a spike in gold on Nov 1st that hit the stop loss on the short trade that was current, and closed it out. The OmiCronFX Silver Trigger routine was attached to the chart and later, when the spike reversed, it re-entered the position, triggered by the reversal momentum. However, it entered it $8.26 per Oz. lower than the price at which the previous trade was stopped out. This would translate into a loss of nearly 0.5% of equity, or $5k on a million dollar account. The chart below the MT4 chart is the same instrument in the same time frame on a Dukascopy JForex platform chart. Here there is no spike.

This is not an isolated incident. There was also a very large spike in NZDUSD on Sept 15th. from the same broker. We were not involved in a trade here at that time but the spike itself is very disturbing. Again, there was no corresponding spike on the Dukascopy chart.

We will not be recommending this particular broker to our clients, and have now moved on to one whose price feed does not exhibit behaviour with the potential to cause devastating damage to account equity. Foreign exchange traders, and indeed all traders, have enough challenges without being obliged to deal with this kind of situation.

1 comment:

  1. I agree with this article really informative.. I also used to prefer 4hrs time frame for analyses as it helps me to have right decision.