Talking Slippage: Is Your Broker Taking Advantage of You?
- There is an easy way to check if you are receiving positive as well as negative slippage.
As traders have become better informed over recent years, it has become harder for less scrupulous brokers to take advantage of their clients. There is, however, one old fashioned broker trick which remains - the practice of retaining price improvements.
[gptAdvertisement]
The London Summit 2017 is coming, get involved!
In short, some brokers, in my view, are being less than fair to clients when it comes to trade Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term prices. The FX market, by its very nature, is not static and on occasion Slippage Slippage In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price Read this Term happens because of this. It is not abnormal for a broker to trade with the street and to get a worse price because the market has moved, which they will pass on to you as slippage.
Profitability
The issue comes, however, when this happens the other way – how does your broker behave when the market moves in your favor? Are they retaining this profit? Profitability in the institutional space has been squeezed in recent times, and retaining price improvements is one way for a wholesale broker to make up for lost profit margins but this, in my view, is unfair to clients.
One of the reasons why this is so prevalent is that clients are often unaware of the situation and don’t think to ask their broker about price improvements. However, it is also unlikely that the sort of broker who retains price improvements would volunteer a truthful answer if asked. The good news is that there IS a very simple way to test whether your broker is behaving fairly.
If you place a small limit order with your broker at a price that is through the market (for example, if EUR/USD is trading at 1.14583 – 1.14585, you enter a buy order for 0.01 lots at limit 1.14610), a broker that is giving you price improvements will fill the order at the market rate (in my example 1.14585). If they are retaining price improvements, they will fill you at your limit price (in my example 1.14610) thereby taking risk-free profit at your expense.
This example would cost you less than $1 but it will tell you immediately if your broker is treating you fairly. It is worth doing this test regularly as some brokers will be able to switch price improvements on and off dynamically.
This issue has been under the radar for far too long… it’s about time it was exposed and addressed.
As traders have become better informed over recent years, it has become harder for less scrupulous brokers to take advantage of their clients. There is, however, one old fashioned broker trick which remains - the practice of retaining price improvements.
[gptAdvertisement]
The London Summit 2017 is coming, get involved!
In short, some brokers, in my view, are being less than fair to clients when it comes to trade Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term prices. The FX market, by its very nature, is not static and on occasion Slippage Slippage In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price In financial trading, slippage refers to the difference in price between the price an order was intended or expected to be filled and the actual price an order was filled. Slippage is a very contentious issue among retail traders, which can lead to issues. Many traders view levels of slippage at brokers as a key determinant for their business. For example, in forex trading, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1080, but they only get into the market at a price Read this Term happens because of this. It is not abnormal for a broker to trade with the street and to get a worse price because the market has moved, which they will pass on to you as slippage.
Profitability
The issue comes, however, when this happens the other way – how does your broker behave when the market moves in your favor? Are they retaining this profit? Profitability in the institutional space has been squeezed in recent times, and retaining price improvements is one way for a wholesale broker to make up for lost profit margins but this, in my view, is unfair to clients.
One of the reasons why this is so prevalent is that clients are often unaware of the situation and don’t think to ask their broker about price improvements. However, it is also unlikely that the sort of broker who retains price improvements would volunteer a truthful answer if asked. The good news is that there IS a very simple way to test whether your broker is behaving fairly.
If you place a small limit order with your broker at a price that is through the market (for example, if EUR/USD is trading at 1.14583 – 1.14585, you enter a buy order for 0.01 lots at limit 1.14610), a broker that is giving you price improvements will fill the order at the market rate (in my example 1.14585). If they are retaining price improvements, they will fill you at your limit price (in my example 1.14610) thereby taking risk-free profit at your expense.
This example would cost you less than $1 but it will tell you immediately if your broker is treating you fairly. It is worth doing this test regularly as some brokers will be able to switch price improvements on and off dynamically.
This issue has been under the radar for far too long… it’s about time it was exposed and addressed.