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Beware of Broker Spreads

20 Years ago | March 07, 2014 8/16/22, 12:00 AM

Most forex brokers these days offer market executions. What does this mean and why should you beware? I got this from a broker website:

A market execution order is one that’s executed at the best price available in the market. There are no re-quotes, but the price will not necessary be the one you saw on the screen when you placed the order.

The price the order is filled at may sometimes differ from the price seen on the platform because:

  • the price may have moved from the last market snapshot, or
  • the trade volume you requested may be larger than the volume available in the market at the best tradable bid/offer (ask) price shown on the screen

In practical terms, you will get filled at what the current price is when your order hits the broker’s server. Where this really comes into play is in periods of volatility especially after news events when spreads may widen when banks pull out or widen their spreads. This is when you need to beware, especially when placing stops as they can get triggered by a widening of the bid-offered spread even though the market is not actually trading at your stop level.

This happened to me recently and was a good reminder about trading around key events. Each broker is different so you need to adjust your strategy based on how your broker quotes during times of reduced liquidity or increased volatility. Brokers claim to be market makers but triggering stops based on a widening of spreads, even if unintentional but beneficial to the broker, as in these cases you may not have been able to buy (or sell as the case may be) at the rate you were stopped out.

 Jay Meisler, founder

Global Traders Association

Related articles:

What is the True Broker Spread?

Why Do Some Brokers Widen Their Spreads?  

Do banks and Brokers Treat Stops Differently?

 

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