This article will help provide a simple explanation as to what the terms slippage and re-quotes refer to when dealing with online brokers, whether trading electronically or using a voice broker.
As financial markets brokerage firms aim to provide quality execution when handling customer orders across various asset classes and trading instruments, the varying types of orders and exchange rules or brokerage policies may drastically differ from one venue to the next, and thus can greatly affect the function of orders and rules governing how such orders are handled.
One common challenge is executing an order at the rate that was requested by the client –such as in the case of a limit order, or the next available market rate as in the case of a market order.
The Essence of Slippage: Change in Rate Between Requested Price and Executed Price
Regardless of the order type and rules of the exchange or broker, if the venue is not able to execute the order at the price requested and a worse price is provided, this is referred to as negative slippage.
In the case of a price improvement or better-than-expected rate than was requested, the slippage is described as positive.
Essentially, slippage is the difference between the rate requested and the rate executed, and is typically due to the fact that prices across various financial instruments often change rapidly in milliseconds or less, sparked by trading volumes, market volatility and the large size of markets (and the accompanying large number of participants). Thus slippage can occur even at the most technically sophisticated brokerages, and not a limitation in a providers system.
Latency and Fast Markets
The specific reason for slippage occurring is a time-delay between when an order is submitted and when an order is received, and to when an order is processed, even when this is done electronically – at the speed or light.
The internet speed/quality and geographic distances between servers, as well as the time needed by the servers to process such operations, all add to the potential latency that can cause rates to change, and thus cause a trade to be slipped either positively or negatively.
In even a shorter period of time, a rate can have already changed a moment after it was displayed, making it no-longer executable or no-longer valid (and thus a stale price –that would cause either slippage or a re-quote to occur).
In the case of a broker only providing negative slippage and never providing positive, such practice is often frowned upon by regulators and described as Asymmetrical slippage. If slippage is to occur, it must be symmetrical, so the positive slippage should be passed on to customers- if the negative slippage is also passed on.
Re-quotes Are Similar to Slippage, Except Trader Decides Whether to Accept or Not
Similar to Slippage, a re-quote occurs when instead of slipping a trade, the broker presents the customer with the option to execute the trade at a different rate than the one they requested- when in such cases the rates originally requested are no longer available. For example, if the EUR/USD rate is Bid 1.3422 and Ask 1.3423, and a client submits a market order to buy at the ask price, the trading platform may re-quote the trade automatically at 1.3424 – if the rate has changed around the time the trader clicks submit/enter to confirm the original order (submit it for execution).
While the details of this process may vary across brokers and depend on their specific policies, the essence is the same in how the re-quoted rate may be more favorable or less-favorable (negative or positive) than the original rate requested.
When dealing with complaints related to slippage or re-quotes, the Financial Commission will examine the rate logs, trade logs, tick-price history or other such data provided by the member broker in order to ascertain the degree of slippage if any and whether it was positive/negative, as well as if the slippage was justified (comparing rate providers). Finally, slippage if and when it should occur, must be symmetrical for the sake of providing clients with fair dealing.
Limit-Orders and Stop-Orders are some of the most basic forms of order types used by traders whether dealing in electronic markets trading via a platform, or submitting orders to a voice broker via telephone.
The essence of Stop-orders and Limit-orders will be described here below, in addition to common best practices that should be followed in order to provide traders with fair dealing.
However, because the rules governing how orders function from one broker to the next may vary, it is always critical to understand in detail how exactly orders function, including their limitations and various outcomes that can occur depending on market conditions – when placing stop and limit orders for example.
Orders Can Vary Across Providers Yet Share Common Traits
Generally a Limit-Order is an order to either buy or sell (not both) at a specific price or better, This implies that if the specific rate is reached, the trade must be executed at that rate as soon as it becomes available or at a more favorable rate (i.e. positive slippage) than the rate specified.
A Stop Order on the other hand, functions similarly to a limit except that the executed rate may be less favorable (i.e. negative slippage) than the rate requested, although it could also be more favorable in certain conditions.
Key Difference Between Stop and Limit Orders
The key difference here between limits and stops is that a limit can be executed at the requested rate or better, whereas a stop can be at the requested rate or better or worse. Thus, in situations like these, stops can carry additional risks.
This can apply to both stop orders to enter the market with a new position (i.e. entry orders), as well as stop-loss orders to close a position at a certain risk-threshold.
Also for Limits, the rules generally speaking as to how they function may be similar across both Entry Limit orders (i.e. to enter the market with a new position) as well as for Limit Orders to take profit and close an order at a certain profit target.
How Orders Can Function Depend on Their Specific Rules from the Broker
Because all of these differences in order functions and the rules governing how they operate can vary from one broker to the next, as described above, in addition to other order types that may be offered, it is always key to understand the specific order characteristics that a particular broker provides. Extra caution should be taken on the language used as the same term can have different meanings across providers.
In addition, even the most basic of orders, a “Market Order” which is an order to buy or sell at the current market rate, which may be executed at the next available price, may act like a Stop-Order or in essence become a Stop-Order where a trader may realize either positive or negative slippage. This is an example of why it’s important for traders to understand all orders types offered by their broker, and the underlying meaning of the terms used to describe how the orders function.
The Financial Commission takes an approach of understanding how its members order types function and then is able to review execution reports to help ensure that orders functioned according to brokers’ own policies- when reviewing related trade-execution complaints or disputes about a specific order, or about how an order functioned during market conditions.
For Example, when reviewing a complaint regarding a stop-order, the Financial Commission will review trade logs, rate logs, price history, tick data, execution reports, or other such data available provided by both customers and their broker, in order to ascertain whether or not there was any fault with how the order was handled.
The underlying service that financial brokerages provide, as their name implies, is the brokering of customers trades, the process of which is described as trading.
As traders engage in this process of buying and selling financial markets products through their brokerage, there exist costs and fees to execute such orders, and brokers typically will add a spread or commission to their underlying costs, if any, in order to net a profit for the services they provide to end traders who are their customers.
The spread is the difference between the BID price and ASK price, which are the prices where an instrument can be sold and bought, respectively. This spread can be a fixed amount, percentage or variable amount, or both, and represents the cost to trade the specific instrument.
Whatever the spread is at any given time, it represents the cost that would be incurred to open and close a position in that instrument, at that moment, by marking-to-the-market (MTM) the trade at the moment it is established (even if the spread or rates change the next moment).
Example Spread Cost Using Trade Example:
For example, if a trade was executed to buy 10,000 units of EUR/USD at an ASK price of 1.3455 and at that same moment the bid price was 1.3450, then with a spread of 5 pips, the costs can be said to be that difference because at the moment that trade was opened the price where it could be sold was 5 pips lower, which would have netted a loss of that amount (1.3455 minus 1.3450 =0.0005 pips).
Whether the market moved at the next moment 5 pips higher (bid 1.3455/ ask 1.3460) which could enable the trade to be closed at a break-even (no profit or loss), or whether it moved 5 pips lower at the next moment which would cause a 5 pip loss, the spread must be added to any profit or loss. In this example, a move higher enabled a break-even, whereas a move lower caused a 5 pip cost to become an overall 10 pips loss (5 pip spread +5 pip market move).
Therefore, the spread and understanding how it can add to your trading cost, as well as how it is charged, in theory, is an important part of managing your trading.
Difference Between Spreads and Commissions
In addition to spreads, commissions are either fixed dollar amounts or percentage of trade values, which are added to trades that are established, such as when opening and/or closing a position. While some firms, may charge only spreads, and others only commissions, and some firms may charge both, the overall sum of charges should be noted. Yet this alone may not be indicative of the quality of the service or execution.
Nonetheless the two principal costs of trading are spreads and commissions, and thus traders should ascertain from their broker what the spreads are if any per tradable instrument offered by their firm, and/or what the commissions are for all available products.
What are Rollover or Premiums and How Can They Add Up to Trading Costs
One additional cost associated with trading in a margin account are financing costs, known as rollover rates or premiums. These charges are applied to trades that are held past intraday, generally 4pm EST, although can vary from provider to provider, and can be either a negative (debit) or a positive (credit) applied to a traders account and charged based on the number of trading days a trade is held open.
These rollover costs can sometimes be positive, for example when trading certain currency pairs where there is a significant interest rate differential between the two underlying currencies involved in a pair – there may be a positive interest paid on one side of the trade, such as in the case of buying the base currency. On the contrary, selling the same base currency in that pair would incur a cost or negative premium charged against the account.
Overview of Trading Costs:
Spreads: Difference between Bid/Ask Prices when trading occurs, can be different per instrument
Commissions: Fixed Dollar amount or percentage fee added to each trade can be different per instrument
Rollover: Cost of Carry premiums and financing costs can be different per instrument and positive or negative depending on direction of trade
Additional Information about Rollover and Financing Charges
In addition to spreads and/or commissions that add up to the cost of trading, traders should be aware of what the rollover and financing charges are to carry trades overnight or past the settlement time when such rollovers are applied.
Furthermore, some trading days have multiple rollover days applied such as on Wednesday, or in the case of certain national holidays for one or more of the currencies involved in a pair, or other trading instrument such as an Index or CFD – where the underlying market may be closed that day or the following day.
The Financial Commission examines the spreads, commissions and/or financing charges when needed when reviewing a related trading complaint or dispute where such information is relevant to understanding the issue at hand, and where the fault if any is found.
In closing, by understanding the overall costs involved with trading, including how rollover rates are applied, and what are the exact rollover rates for buying or selling the available trading instruments, traders can better plan their strategy and take such costs into consideration.
Whether this brokering is done in an agency, principal, exchange or other business model, regardless of the venue type, or method for routing the order, spreads and commissions have come down considerably, but is not always indicative of the best quality service or execution efficiency.
August 8th 2014: Hong Kong & New York, FinaCom PLC, operator of www.FinancialCommision.org, the independent mediator for Foreign Exchange and Binary Options has announced today the launch of several educational webinars, aimed at teaching traders how to choose the right forex broker.
The online workshops will be hosted by the Financial Commission. During the session, the Chairman, Peter Tatarnikov will discuss the selection criteria that can help traders conduct due diligence when choosing a forex broker to establish a live forex trading account.
Items to be discussed during the webinar include:
Mr. Tatarnikov has nearly 14 years experience in the Forex Industry, having started his career as trading desk assistant back in 1999, in 2003 he filled a Chief Dealer position in one of the largest retail Forex brokers in Russia.
Gaining in-depth knowledge of FX operations and high managerial skills brought Peter to a COO position at Forex Club USA in 2006 and in 2010 he earned a CEO chair. During his career, Peter designed and held over 200 seminars on Forex Trading, and thus brings a wealth of experience as a speaker. His professionalism and commitment has made him a well-known FX market commentator and spokesperson for the retail FX industry.
The webinars are scheduled to take place every Tuesday at 13:00 EST, with registration now open for the following upcoming dates:
Registration can be completed via FinancialCommission.org, and after which an email with a link to enter the virtual classroom will be automatically sent to the e-mail address provided during the registration process.
August 8th 2014: Hong Kong & New York, FinaCom PLC, operator of www.FinancialCommision.org, the independent mediator for Foreign Exchange and Binary Options has announced today the launch of several educational webinars, aimed at teaching traders how to choose the right forex broker.
The online workshops will be hosted by the Financial Commission. During the session, the Chairman, Peter Tatarnikov will discuss the selection criteria that can help traders conduct due diligence when choosing a forex broker to establish a live forex trading account.
Items to be discussed during the webinar include:
Mr. Tatarnikov has nearly 14 years experience in the Forex Industry, having started his career as trading desk assistant back in 1999, in 2003 he filled a Chief Dealer position in one of the largest retail Forex brokers in Russia.
Gaining in-depth knowledge of FX operations and high managerial skills brought Peter to a COO position at Forex Club USA in 2006 and in 2010 he earned a CEO chair. During his career, Peter designed and held over 200 seminars on Forex Trading, and thus brings a wealth of experience as a speaker. His professionalism and commitment has made him a well-known FX market commentator and spokesperson for the retail FX industry.
The webinars are scheduled to take place every Tuesday at 13:00 EST, with registration now open for the following upcoming dates:
Registration can be completed via FinancialCommission.org, and after which an email with a link to enter the virtual classroom will be automatically sent to the e-mail address provided during the registration process.
Nuevas Decisiones, Corredores de Bolsa – Miembros de la Comisión, Miembros del Comité de Arbitraje, Efectividad de Resolución de Reclamaciones
A lo largo de la primera mitad (H1) del año 2014 han sucedido una serie de eventos positivos para la Comisión Financiera, la organización inspirada por las necesidades de la industria, que se gestiona por la FinaCom PLC, registrada en Hong-Kong, y tiene su sitio – FinancialCommission.org
Más adelante, ofreceremos a la atención de nuestros socios, sus clientes y a toda la opinión pública, un informe sobre nuestra actividad, mientras que nuevas compañía de corredores de bolsa y empresas ya existentes, están considerando la posibilidad de su membrecía en la Compañía Financiera, con el objetivo de mejorar sus relaciones de negocio y recibir ayuda para resolver sus cuestiones esenciales, por medio del uso de una decisión, ofrecida por un tercero, que es económicamente eficaz e imparcial. Los datos, que presentaremos más adelante, ayudarán a ver el cuadro general de las funciones y resultados, alcanzados por nuestra organización, a lo largo de los primeros seis meses del año 2014.
Estadística de la primera mitad del año 2014:
A lo largo de la primera mitad del año 2014, la comisión ha recibido, en total, 34 reclamaciones, 16 de las cuales se dirigían contra los socios actuales, mientras que las demás 18 reclamaciones se dirigían contar compañías, que no son socios de la Comisión Financiera.
Las cantidades monetarias de las reclamaciones eran diferentes: desde el índice más bajo de $ 24,00 hasta $ 26 000. Un total, 29 de las reclamaciones presentadas se relacionaban con trading de Forex, mientras que las 5 restantes se relacionaban con el comercio de las Oposiciones Binarias.
20 reclamaciones han sido resueltas exitosamente en el desarrollo del estudio del Comité de Arbitraje de la Comisión Financiera, y 2 reclamaciones más, quedan en proceso de estudio (para el momento de estar escribiéndose este artículo).
Además, entre las reclamaciones anteriormente mencionadas, 12 reclamaciones se relacionaban con el proceso de comercio, 13 reclamaciones se relacionaban con la retirada de medios monetarios y 4 reclamaciones resultaron dentro de la categoría de estafa. Entretanto, no hay información suficiente sobre 12 reclamaciones de clientes, dirigidas contra compañías, que no son socios de la Comisión Financiera.
| Cantidad total de reclamaciones 34 | Resueltas | |
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Noticias y eventos de la Comisión Financiera en la primera mitad del año 2014
El enfoque de la Comisión Financiera sigue siendo el desarrollo de sus esfuerzos, con el fin de ayudar a la industria y proporcionar beneficios a corredores de bolsa online, y a los comerciantes correspondientes, ofreciendo sus decisiones a una cantidad creciente de compañías, asimismo, como aumentando la cantidad de decisiones, que la Comisión Financiera ofrece a sus socios.
Para alcanzar este resultado, en el período de la primera mitad de este año, la organización ha participado en una serie de conferencias claves de Forex, ha designado a un nuevo miembro a su Comité de Arbitraje y ha elaborado unos nuevos métodos para trabajar con instrumentos adicionales y para ofrecer servicios a otros segmentos de mercado, relacionados con opciones binarias, por medio de certificación de la plataforma tecnológica.
Participación en conferencias de la industria Forex:
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A principios del año 2014, la Comisión Financiera ha participado en la Conferencia Internacional IFX EXPO en Macao, que es una importante conferencia departamental en Asia, y reúne en un lugar, una gran cantidad de compañía de corredores de bolsa y proveedores de plataformas. |
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La conferencia FX en Turquía, organizada por Forex Magnates, resultó otro evento de importancia, en el cual la comisión ha participado a lo largo de la primera mitad del año 2014. |
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En el desarrollo del congreso FX en Rusia, organizado por la primera Organización Autoregulable Centro de Regulación de Instrumentos Financieros Extrabursátiles de Rusia, el dirigente del CRD Anatoly Bulanov presentó una investigación-ejemplar de varios casos de resoluciones locales de disputas, subrayando sus ventajas y desventajas. |
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A finales del primer semestre del año 2014, la Comisión Financiera ha participado en la Conferencia internacional IFX EXPO en Chipre, donde el jefe de la Comisión Piotr Tatarnikov se presentó como conferenciante y, como una parte de su presentación, pronunció el discurso de programa sobre las funciones de la organización. |
Designaciones Claves y Cuerpo de Miembros:
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Juan Dzhutgla llegó a convertirse en un miembro del Comité de Resolución de Disputas (CRD) de la Comisión Financiera, con lo que fortaleció el panel ya bastante amplio de los dirigentes de compañía de la industria Forex, quienes participan en tomas de decisiones por reclamaciones, que se estudian por la organización. |
Nuevas Decisiones y Eventos Claves:
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Para demostrar la eficiencia del proceso de resolución de disputas en la Comisión Financiera, la organización ha empezado a publicar la toma de reclamaciones seleccionadas aleatoriamente, que han sido despersonalizadas posteriormente, con el objetivo de que las personas interesadas puedan concentrarse en el contenido de problemas surgidos, y en la manera de resolver las reclamaciones, posteriormente, en el desarrollo de este proceso único de intermediarios. |
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Con el fin de proporcionar preferencias para representantes de la industria de Opciones Binarias, la Comisión Financiera ha organizado el proceso de certificación de plataformas tecnológicas para Opciones Binarias, como la base para garantizar el estudio justo de reclamaciones, relacionadas con Opciones Binarias, con lo que se abren las puertas para corredores de bolsa de Opciones Binarias en su camino a la membrecía en la Comisión. |
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La Comisión Financiera ha anunciado la primera plataforma de certificación para las Opciones Binarias – Binarystation, del proveedor de la tecnología Binaryware LLC, USA. |
Compañías-socios de la Comisión para los Finales de la Primera Mitad del año 2014:
Actualmente, el Comité de Resolución de Disputas (CRD) está formado de los siguientes miembros:
Eventos Próximos para la segunda mitad del año 2014:
Dentro de la misión de la organización, dirigida a la ayuda de clientes a través de canales educativos, la Comisión Financiera está planeando crear tales instrumentos para comerciantes, como: seminarios web, materiales de instrucción para comerciantes, asimismo, como introducción de instrumentos tecnológicos, que les servirán a los comerciantes en su actividad de revisión de precios y cumplimiento de órdenes.
La organización tiene como objetivo, en el próximo trimestre en la segunda mitad del año 2014, aumentar la cantidad de nuevos socios, y certificar una cantidad más amplia de plataformas comerciales para Opciones Binarias, que pertenecen tanto a compañías de corredores de bolsa, como a proveedores ajenos de tecnologías, para Opciones Binarias.
The Financial