Glossary Term

Stop-Hunting

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Stop-hunting is an unsavory practice employed by disreputable brokers that is intended to trigger clients’ stop-loss orders so that they are liquidated at a loss before the price retraces and starts moving back in the opposite direction. Imagine you bought gold at $1200 and set your stop loss at $1100, meaning that your position will be closed if the price drops back down to this level. Stop-hunting occurs when a broker knows that a large number of clients have also set their own stop-losses at this level (traders tend to set these levels at round psychological numbers, which should be avoided). The broker can then manipulate the price, causing it momentarily dip, either by adjusting their price feed or actually selling large quantities of gold. If the prevailing trend is bullish then the price dips to the stop-loss level, triggers all the stops, forcing clients to sell at this unprofitable price, at which point it reverses and goes back up.

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