If the term “price shading” sounds like something underhanded to you—you’re absolutely right! Price shading refers to a variable pricing, in which a broker arbitrarily changes the price within a certain range. It is not usually a large range, but even a little bit can be enough to increase his profit margins. Brokers often use this practice when their assessment of a currency indicates an upward trend, in order to profit more from each trade. This type of covert manipulation is possible because currency trading is not regulated or guaranteed, and therefore only requires agreement and cooperation between buyers and sellers.
Here’s what price shading means for money traders. The broker adds a pip or two to the price charged. A pip (percentage in point) is the smallest possible price change – usually about 1/100 of a percent or $0.0001. While this does not sound like a significant amount, when the trade involves large amounts of money, it adds up quickly and results in a tidy profit for the broker.
In the past, there was no easy way to know if a broker was using this practice and taking unfair advantage of traders.  Brokers were able to change prices to their favor at will, with few traders aware it was being done, and no easy way to find out.  The only way was to have one’s own terminal from Reuters or Bloomberg, or to deal with a broker that provided “straight-through processing.”  Fortunately, now at last there is a much easier way!
Thanks to today’s technological advances, traders of any size or level can now have access to the data necessary to be able to accurately monitor and negotiate intelligently with these brokers.  Specially designed software has been created to aggregate broker data on a global basis.  With this accumulated and sorted data, traders can easily assess the market value and actually see what is happening with the prices in real time.  More advanced software—like Broker Watch™ from eTech Money—has built-in flags to let traders know if and when the broker is using price shading; a trader can catch a price shading broker in the act!
By knowing whether your broker is shading, you can know how to best play your own hand. If the broker is shading to the buyer, and you sell, it is possible you could come out quite a bit ahead. The reason for this is that the broker tends to shade to his own advantage, which is to the disadvantage of the trader, whenever possible. Â Therefore, if you are going against that, you are probably doing the right thing, and that means profit in your pocket.
If you want to come out ahead in the currency trading game, the most important thing you need to do is research.  Learn what you need to know—and take advantage of the available technology.
Do all brokers do this to some extent? At least we have the technology now to see how bad they are getting over on us!
Dennis, “Market Makers” are allowed to make a market. What constitutes a fair and equitable market is somewhat a gray area. Apparently, FXCM is being sued for $100′s of millions of dollars because of predatory market making which would include “price shading.” To what extent an FCM’s or FDM’s (a USA FX broker designation) prices moves above or below the EtechMoney’s global price average that would trigger price shading, is the big question.
YES, there is a point in complaining. EtechMoney will eventually offer a FOREX POLICE Page wherein you can quickly file a complaint with your broker. If there is not a satisfactory reply within a a given time-frame (the reply time-frame is dependent on the regulatory body in your area), then your complaint will AUTOMATICALLY be sent to the correct regulatory agency in your region and/or the region of your broker.
That will change the landscape for the better. Brokers will either clean up their act or be regulated out or taken out by market forces that we help facilitate.
After reading this article about broker price shading I can see the pros and cons. Sure there are times a broker might be thinking ahead, however if this happens every single time with every customer, well that is another story. Honestly, since this is a grey area I would want to be told ahead of time if it was a broker that shaded so I would know what perspectives I should take on trades.
Wow, I am very impressed with EtechMoney’s tool. I would guess there are a few brokers out there who would not like to see that happen. I think we have to stand up for what is right and wrong in trading. Sure I want my broker to make money, but the fair way. If he doesn’t play fair then he should be turned in. I vote yes for Forex Police.
Is price shading against regulations, or is it considered acceptable behaviour by the regulatory authorities, especially where marketmakers are concerned? – i.e. – is there any point complaining about it, if it can be proved by your software?
Hi Irene, “Market Makers” are allowed to make a market. What constitutes a fair and equitable market is somewhat a gray area. Apparently, FXCM is being sued for $100′s of millions of dollars because of predatory market making which would include “price shading.” To what extent an FCM’s or FDM’s (a USA FX broker designation) prices moves above or below the EtechMoney’s global price average that would trigger price shading, is the big question.
YES, there is a point in complaining. EtechMoney will eventually offer a FOREX POLICE Page wherein you can quickly file a complaint with your broker. If there is not a satisfactory reply within a a given time-frame (the reply time-frame is dependent on the regulatory body in your area), then your complaint will AUTOMATICALLY be sent to the correct regulatory agency in your region and/or the region of your broker.
That will change the landscape for the better. Brokers will either clean up their act or be regulated out or taken out by market forces that we help facilitate.
In some cases, a minor shading of price might be a legitimate move in honest anticipation of how he believes the price is actually moving. This is acceptable. What concerns me are the big spikes, large sudden deviations from average prices. That type of price shading is outright manipulation with personal profit motives taking over. Forget about being acceptable or not acceptable by any authority–it’s downright immoral! I’m all in favor of any software or company that can show me exactly when that type of price shading is taking place!
I understand what you are saying, but if someone were shading minimally, but quite often or maybe even too often, wouldn’t that ultimately lead to the same result, just over a longer time frame?
Kevin, you may have a point there. I didn’t think of it in that way but yes it seems that it would lead to a similar result just over a longer time frame. Since there will be record though we should be able to differentiate between the two though.
Can we trust anyone anymore? Thank goodness for technology, now we just have to learn how to use it to our advantage! If you come across a broker that is doing this, how is the best way to handle it?
I suppose many brokerages will not like the idea of their clients using such software that will reveal how they manipulate price movements behind the scenes. I wonder if there is some loophole that the brokers might try to use to claim the results given by Broker Watch are not accurate.
I agree Irene. This software will really put some brokers out on the chopping block, hopefully this sheds a great deal of light on which brokers can be deemed trustworthy.
Irene, You can be certain that they will try to find the loophole, if there is one to speak of. I am hoping that Broker Watch is designed though so that there is no loopholes at all!
“Market Makers” are allowed to make a market. What constitutes a fair and equitable market is somewhat a gray area. Apparently, FXCM is being sued for $100′s of millions of dollars because of predatory market making which would include “price shading.” To what extent an FCM’s or FDM’s (a USA FX broker designation) prices moves above or below the EtechMoney’s global price average that would trigger price shading, is the big question.
YES, there is a point in complaining. EtechMoney will eventually offer a FOREX POLICE Page wherein you can quickly file a complaint with your broker. If there is not a satisfactory reply within a a given time-frame (the reply time-frame is dependent on the regulatory body in your area), then your complaint will AUTOMATICALLY be sent to the correct regulatory agency in your region and/or the region of your broker.
That will change the landscape for the better. Brokers will either clean up their act or be regulated out or taken out by market forces that we help facilitate.
It’s too bad that we have to worry about this sort of thing all of the time. If it weren’t for the technology we have, we could be suffering much more losses.
I agree with you Kevin. It is too bad that people can’t just stay on a straight line. If they did, everyone would have something to gain.
I just wanted to thank you for this post! It took me a week to find out what a “PIP” was when I started researching trading last month! Your information is so great and right on! Thanks to people like you, from a rookie~
Cheri (and everyone) please spread the word about Etechmoney and our upcoming, global investment marketplace.
Cheers,
Michael Mansfield
I think it is great that this is out there and these brokers are going to be exposed to some extent. With traders having less to worry about I can see a great deal of success to come for many!
If a broker did not price shade, how would he make any money at all? Do they charge a fee for their services? If they do, then they definitely have no excuse for price shading other than simple greed.
Yes, they most certainly do charge a fee that is to facilitate the transaction. This is one way they make money, there are others. Price shading is just a way to beef up their earnings. A little here a little there adding up to quite a bit of money that may have been unfairly earned.
Would it still be considered “shading” if they said they were doing it up front? Would people use a broker that said, “Ok, the price is __ but I add a .001 so for you it’s ___”?
Well, if the trader was always honest about shading, and consistent, there are times the trader could also benefit from this. So I would rather be told up front. Still, I might change brokers, but they could be doing it secretly for all I know. I would find out with eTechMoney’s tools though.
I do not think brokers would ever admit to doing this. Even if you said, tell me and I will stay with you. The only way we are going to know is with tools, like the ones here on eTechMoney.
Forex Police sounds great and I have full respect for EtechMoney planning something like that. After enough complaints made to the right agencies would the broker be forced to stop shading?
I’m glad I discovered this site, also. There are a lot of useful tools and information available here and I’m looking forward to seeing more of it!
I agree, I am pretty new to this site, but I think that it covering a much needed void in the Forex world. As technology improves so do the way we work with brokers. Glad to see someone not only sees that, but is doing something about it.
And, additionally, I’m glad that they are willing to make available their findings for everyone else who may need (or want) to know. Information is power, they say!
I agree, information is power. There are so many people who suspect something, but with no information or any way to find out the truth, they can do nothing. Times are changing in the Forex market so brokers better change too.