Retail forex market

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Retail forex market is different from the forex interbank market. Retail forex market is full of small traders. The trade size is usually so small that the retail forex broker is at a disadvantage. The retail forex broker is forced to act as the retail trader’s sole counterpart. When the liquidity is good, making artificial market for their clients is not an issue for forex brokers since they simply offset their risk in the interbank market. However, in illiquid times this represents a great problem for the retail forex broker and an opportunity for the small traders.

As a trader, we all know every now and then the market will test a critical level. The Big Figure Trade is an example of how you can take advantage of your retail forex broker limitations. It can be a Fibonacci level, a trendline or maybe even a big figure. The actual level is not important. The forex market will often reach a critical level where most of the traders believe that it cannot go higher during sharp, one sided intra day price moves.

Traders initiate short positions near that level. Don’t forget price moves in the forex market tend to be self fulfilling. Usually there is a big round number that short sellers set their stops above. This is the time when the forex brokers mount their attack on the stops. The short sellers are confident that the market is overbought enough and it will not have the energy to push past the psychologically important number. Now this is what happens when the forex broker mount an attack on the stops. The typical price action is for the price to fail near the figure a couple of times before the forex brokers produce a quick coordinated attack on the number quickly setting off the number lying above.

Most traders have this happen to them a number of times. In an instant the rate is below the big figure. A quick blip and your stops are busted. The price action than promptly crashes in the expected direction immediately! This trade works especially well for the retail forex brokers with their fixed spreads and guarantees force them to make a market where there is none. Nothing is more aggravating to a trader than this setup knowing that your money was quickly taken away.

The action is so quick and one sided that in the interbank market virtually no trading is possible at those prices when the forex broker pushes the rate higher and trips stops above the big figure. Although a true bank dealer may not be able to get the fill at those prices but you can. Spreads widen typically only the offer side of the quote runs higher since no forex dealer would want to be long above the figure.

If the trade goes wrong, you know exactly how much you are going to lose. The beauty of this trade is that your risk is limited and determined. Remember that money management should always be at the forefront of your trading decisions. Pulling of this trade requires identifying the setup, knowing the forex broker game plan and staying one step ahead of them. How do you identify the setup for the big figure trade? Know your forex broker’s game plan. Look for one way trending market. Overbought readings and obvious targets of round numbers! You know that the forex broker wants to trip stop losses above say 1.5000 GBP/USD price level and collect some quick pips. As soon as the stops are tripped the price will quickly drop back to the previous levels.

How are you going to set your orders for the big figure trade? Set sell order lot no 1 at 1.5000. Set sell order lot no 2 at 1.5005. Set sell order lot no 3 at 1.5010. Set take profit for these lots at 5 pips below the figure or 1.4995. Set the stops for all these three lots at 20 pips above the figure or 1.520. You will want to ask at this point what happened to the money management rules that are so important for traders. It is better to take quick profit rather than risk losing it all waiting for a deeper correction because of the high probability of the trade working out in your favor.

Remember you are trying to take advantage of the forex broker’s actions and not predicting the future. The expected price action is a spike meant to trip stops than a quick decline and that is what you are going to exploit. Now let’s use an example to make clear how the big figure trade works. Suppose the forex broker makes a quick move beyond 1.5000. The stops go off. The price trades briefly over 1.5000, only a couple of pips to print a high of 1.5006. Only two of your orders get filled. The price quickly drops under the big figure.

When the price reaches 1.4995, your profit take order for the two lots is quickly executed. You make a quick sure shot profit of 15 pips. Not bad for ten seconds of work. Be prepared ahead of time in order to trade the big figure. Get out if the trade does not work out immediately say something like 15 minutes. The price action is telling you that it is being supported by some real money demand rather than a broker in such a case.

This trade works best at the end of an overbought intra day trending move coupled with psychological numbers like 1.2, 1.5, 2.00 etc although the moves are similar near most round numbers. You are only trying to ride the coat tails of your forex broker. Remember that you are not trying to predict the future like a reversal or continuation. The spike might continue higher for another 50 pips. It might top out and collapse. Generally try to trade only close to the big figure since that is the one hiding stops. You are only in the trade for a low risk profit of 10-15 pips that the forex broker is generous enough to cough up for you.