Understanding the Retail FX Market (Retail Brokers and us)
1. Market orders: a market order is an instruction to your broker to buy or sell a currency at the best price available at that time. Now here's the problem. At a certain point you see the price rising, you decide to go long and you click the button. By the time the order is processed, and hits the floor, that price may not be available. Your broker will re-quote you, in effect he's saying 'sorry no can do, but I can offer you this price, do you still want it?’. You then have a choice; to accept, or decline.
Our greed comes into play then, plus our fear of missing out on the move. Your first instinct will be to say yes, simply because you've decided that price is going to rise and you want a part of the action. At times of high volatility (i.e. lots of money and orders flying around) this may happen more than once. It's not your broker keeping you out of the market; it's a simple case of his inability to find someone to match up your order with. Think about it; you're looking to buy X at 1.6000, but everyone else is selling X at 1.6010. Why should another trader take a 10-pip hit just to fill your order? Life doesn't work that way, and it certainly doesn't in FX trading. If you keep saying yes, and you keep getting requotes, get out of the market. Let the dust settle and re-think your approach. If you thought 1.6000 represented good value for X, don't pay more than you have to. This is a business, and you won't survive if you keep paying more for your goods than you think they're worth.
So, what's the next option? Let's try Buy/Sell Stops, they must be better, mustn't they? This way we can wait for price to hit our order, get filled, and carry on moving on up/down. Fine in principle, and I used them regularly at one time, but what I failed to realise is that a Buy/Sell Stop becomes a Market Order, when your Stop Order is hit. This means, of course, that you are back to the same situation as above, you're fighting to get into the market along with everyone else. No doubt that at our level it's easier to get filled on a Buy/Sell Stop, at least I've never had a re-quote on one, and that can lull us into a false sense of security. When the time comes, and you've a Buy Stop for several million dollars waiting to go, things may not be so cut and dried.
I'm not a news trader, nor likely to be, but all the complaints I read seem to stem from this one simple fact; at times of high volatility, like a major news announcement, orders get filled with large amounts of slippage. Even I can understand why this happens. Your broker is reflecting the width of the market (spread), so if he has to widen his spread, and it hits your Buy Stop (now a Market Order), how on earth can he take the time to offer you a re-quote? With millions of dollars being traded wildly every second, while everyone tries to make sense of the news itself, is he really going to bother to ask if you still want your $500 order to be accepted at a price which may not last more than a couple of seconds? The outcome is that you'll get the only price that he can get taken up by someone on the other side, and, unfortunately, it's probably not the price you wanted,
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Please post any comments, or questions, in the Discussion thread
1. Market orders: a market order is an instruction to your broker to buy or sell a currency at the best price available at that time. Now here's the problem. At a certain point you see the price rising, you decide to go long and you click the button. By the time the order is processed, and hits the floor, that price may not be available. Your broker will re-quote you, in effect he's saying 'sorry no can do, but I can offer you this price, do you still want it?’. You then have a choice; to accept, or decline.
Our greed comes into play then, plus our fear of missing out on the move. Your first instinct will be to say yes, simply because you've decided that price is going to rise and you want a part of the action. At times of high volatility (i.e. lots of money and orders flying around) this may happen more than once. It's not your broker keeping you out of the market; it's a simple case of his inability to find someone to match up your order with. Think about it; you're looking to buy X at 1.6000, but everyone else is selling X at 1.6010. Why should another trader take a 10-pip hit just to fill your order? Life doesn't work that way, and it certainly doesn't in FX trading. If you keep saying yes, and you keep getting requotes, get out of the market. Let the dust settle and re-think your approach. If you thought 1.6000 represented good value for X, don't pay more than you have to. This is a business, and you won't survive if you keep paying more for your goods than you think they're worth.
So, what's the next option? Let's try Buy/Sell Stops, they must be better, mustn't they? This way we can wait for price to hit our order, get filled, and carry on moving on up/down. Fine in principle, and I used them regularly at one time, but what I failed to realise is that a Buy/Sell Stop becomes a Market Order, when your Stop Order is hit. This means, of course, that you are back to the same situation as above, you're fighting to get into the market along with everyone else. No doubt that at our level it's easier to get filled on a Buy/Sell Stop, at least I've never had a re-quote on one, and that can lull us into a false sense of security. When the time comes, and you've a Buy Stop for several million dollars waiting to go, things may not be so cut and dried.
I'm not a news trader, nor likely to be, but all the complaints I read seem to stem from this one simple fact; at times of high volatility, like a major news announcement, orders get filled with large amounts of slippage. Even I can understand why this happens. Your broker is reflecting the width of the market (spread), so if he has to widen his spread, and it hits your Buy Stop (now a Market Order), how on earth can he take the time to offer you a re-quote? With millions of dollars being traded wildly every second, while everyone tries to make sense of the news itself, is he really going to bother to ask if you still want your $500 order to be accepted at a price which may not last more than a couple of seconds? The outcome is that you'll get the only price that he can get taken up by someone on the other side, and, unfortunately, it's probably not the price you wanted,
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Please post any comments, or questions, in the Discussion thread