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Manipulation Strategies in Forex Trading

The forex market, like other financial markets, is not immune to manipulation practices by large players. These manipulations often result in losses for retail traders, who may not realize they have fallen victim to such cunning strategies. This article will discuss how manipulation strategies in the forex market are carried out and how to avoid them.

The Importance of Understanding Forex Market Manipulation Strategies Many novice traders attribute their losses to lack of skill or experience. However, these losses can often be caused by market manipulation by large players. Although such actions are illegal, financial regulators find it difficult to detect them due to the multitude of variables affecting currency pair prices.

How Forex Market Manipulation Works 

Forex market manipulation involves influencing traders' behavior to alter the supply and demand balance of a currency pair in favor of the manipulator. Technically, manipulators influence a group of traders to act according to their expectations. In forex trading, transactions only occur if there are parties willing to buy and sell. However, we don't know who we are trading with—it could be with novice traders or large players intentionally manipulating the market.

Stop Hunt Strategy 

One commonly used manipulation tactic is the "stop hunt" strategy. Stop hunt involves luring traders out of their positions by pushing prices to predetermined stop-loss points. When the price reaches these points, traders exit the market, causing the desired price movement for the manipulator.

Illustration of Stop Hunt Strategy: 

Imagine a large company in the UK wants to convert 10 billion GBP into USD. They use a professional broker to avoid sharp slippage. To mitigate the negative impact of this large transaction, the broker divides the position into small lots and manipulates the market to hit stop orders often placed by retail traders. After many traders exit the market, the broker obtains a better entry position. When the price reaches the desired point, the broker executes the transaction, and the price reverses drastically.

How to Avoid Falling into Market Manipulation Traps 

 To avoid market manipulation, traders need to understand how the forex market can be manipulated. This knowledge is crucial so that traders don't always blame their own strategies or accuse brokers of cheating.

Tips to Avoid Stop Hunt:

  1. Avoid placing stop-loss orders just below support or above resistance. Manipulators often target these positions.
  2. Don't place stop-loss orders too far from the entry point. This helps avoid significant losses.
  3. Place stop-loss orders at points that invalidate the previous trading setup. This ensures that your stop-loss position is in a safer place.

Consequences of Forex Market Manipulation 

Forex market manipulation strategies are highly detrimental to retail and novice traders. Large players who understand retail traders' behavior can exploit this situation for their benefit. However, blaming market conditions will not lead to success in trading. Traders need to learn to handle various uncertain market situations.

Manipulation strategies in the forex market are a bitter reality that retail traders must face. Although considered common, these practices are highly damaging. Traders need to understand how and why this manipulation occurs to avoid it. Instead of blaming the market, it's better to increase knowledge and skills to wisely deal with various market situations. With better understanding, traders can avoid manipulation traps and improve their chances of success in forex trading.


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