DislikedHi Jason, could you please explain (or direct me to) how fxcm handles limit orders (e.g., stop loss and take profit orders) through its liquidity order book. Whenever a NDD client enters a stop-loss or take profit (a limit order) via Mt4, what happens on your end? That is, when your liquidity book hits a client limit price (taking into account spread), do you immediately send a market order to the order book? If the spread is too high (on a short), do you wait to confirm it can get filled at the limit? If there is clear slippage on your end, do...Ignored
First, to avoid confusion, I would like to clarify some terminology.
- Limit orders and stop orders are both types of pending orders. That means they wait for a specific price to be reached in order to be triggered.
- Market orders by contrast are executed immediately at the best available price in the market.
- Limit orders can only be filled at the price you specify or better. This gives you price certainty, but not execution certainty, since the order can only be executed if the price you want is available in the market. That is why limit orders are used to take profits (AKA take profit orders).
- Stop orders become market orders when triggered, which means they will be executed at the best available price in the market. This gives you execution certainty, but not price certainty. That is why stop orders are used to cut losses (AKA stop loss orders).
Slippage with FXCM can be either positive or negative. However, slippage with limit orders can only be positive. In fact, a twelve-month study of orders executed through FXCM show that over 58% of all limit and limit entry orders received positive slippage: http://bit.ly/1KWaV8g
Since stop orders become market orders when triggered, slippage can be either positive or negative, but is usually negative. The same twelve-month execution study showed that 52% of all stop and stop entry orders received negative slippage.
Highlights from the study:
- 76.2% of all orders had NO SLIPPAGE.
- 13.5% of all orders received positive slippage.
- 10.2% of all orders received negative slippage.
- Over 58% of all limit and limit entry orders received positive slippage.
- 52% of all stop and stop entry orders received negative slippage.
The reason why limit orders tend to receive positive slippage while stop orders tend to receive negative slippage is due to the momentum of price movement when such order types are triggered.
It's worth noting that even on the MT4 platform, limit orders with FXCM can only receive positive slippage, not negative slippage. I mention this because, with some MT4 brokers, limit orders become market orders when triggered. That opens up the possibility of receiving negative slippage just like with any market order.
In addition, FXCM provides you with tools to help you minimize your negative slippage and still receive the full benefits of any positive slippage that's available in the market.
- Market Range (AKA Maximum Deviation* on our MT4 platform) lets you specify how much negative slippage you are willing to accept on a market order. If you set a Market Range of 2, then 2 pips is the most negative slippage you could get on the order. Otherwise it will be canceled to protect you from unwanted negative slippage. However, you could still receive 3 pips or even more positive slippage on the order, if a better price is available in the market.
- Range Entry works like Market Range but for pending orders (stops and limits) and is only available on our Trading Station platform (not MT4). In this earlier post, I show an example of how to use the Range Entry feature: http://www.forexfactory.com/showthre...22#post8552322
* Many MT4 brokers do not support the Maximum Deviation feature at all. Some brokers that do offer Max Dev use it to limit both your positive slippage and your negative slippage equally. By contrast, FXCM enhanced the Max Dev functionality of our MT4 platform to limit only negative slippage. That means, you can still receive the full benefits of any positive slippage that's available in the market when you use the Max Dev feature to minimize your negative slippage with FXCM.
