I am truely amazed by how many here have confused volatility with liquidity. Suppose just another case of the blind leading the blind here on BP’s.
Hey harrycosh! Slippage is something which is not caused by the STP broker. Slippage comes from the market and brokers don’t cause it. When you trade with a real STP broker in the long run, positive and negative slippage will very likely be balanced which means the term will lose its negative character. As we know Slippage may be caused by liquidity shortage, high volatility (price change during execution) or if you are rejected by the LP and you have to be executed on the "Next best available price"
When trading with a market maker there is no slippage, because he hides it in the spread and wins from the big spreads. Market makers benefit when the clients lose to they usually trade against the clients.
Furthermore, please note that the slippage depends on the order you enter. If you have buy/sell stop, it is more probable to have more often negative slippage, and if you have buy/sell limit, it is more probable to have positive slippage.
Last but not least I think that you could not trust demo account for real slippage overview as trades are not executed on the real market.
I hope that would be helpful.
Cheers!
As we know Slippage may be caused by liquidity shortage, high volatility (price change during execution)
So it appears we need to fix things up here. Sorry bro but price change during execution is liquidity. And since so many have got it wrong lets dive into it.
First, slippage as I define it, is the difference in desired price and executed price. Nothing more, nothing less.
As defined by Investopedia,Volatility is;
“a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.”
Although some might argue that at a tick level (which is where ones order gets filled) you can still measure volatility, the reality is a tick is only a singular price moment filtered by our broker.We do not have the data to measure dispersion. Just because there might be perceived volatility, doesn’t mean our order isn’t going to be filled at our desired price.
Liquidity can be defined as;
“the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.”
So in a highly liquid market, we can buy and sell freely knowing we’ll get our desired price. Therefore no slippage. But when liquidity drys up like around news events, no-one is interested in our orders and we won’t be able to enter at our desired price. We have to accept what is on offer. And that’s where the problem lies. We don’t have access to order books, we don’t know what inventory the banks are holding, we don’t know what liquidity our brokers provider is giving. That screenshot we look at is but of past price action, it provides no data to the hear and now.
There is also another factor that affects slippage and is overlooked greatly. Latency. The time it takes to send your order through to your broker. Limits and stop have no latency as you have already given your broker permission to enter into a contract with you. Your broker can assess their risk and fill your order at your desired price. However you send a market order first you have 300-500 ms latency before your broker recieves your order, they then have to analyze the risk. This takes time and a lot can happen to market price in such a short space of time.
And one final thing to clear up.
When trading with a market maker there is no slippage, because he hides it in the spread and wins from the big spreads. Market makers benefit when the clients lose to they usually trade against the clients.
While generalized as true,all retail brokers are market makers regardless of their marketing. Read their PDS, your risk lies with them, they take the opposite side of your contract, you arer are an unsecured creditor to their business.
Fair enough but bit of a generalization re: ecns/market makers there … ECN brokers might keep unprofitable traders on book but profitable traders are passed on to LP either right away or as soon as there’s enough volume (if they’re small fish)
Thats what they’ll have you believe bro.
You think they keep profitable traders in house and pay them out? No way. Profitable traders are passed to LP - they are a liability for the broker. Market makers just ban them, ECNs A Book them.
Hell there’s even market makers who do this - passing on profitable traders to LP is wiser biz decision than banning as you get 0 negative publicity and still at least earn commissions/spread from the profitable trader.
G’day bro. I’m not going to pretend to understand the inner workings of my broker or the retail broker sector. As you well understand but, read any PDS from a regulated broker and it will clearly state your contact lies with them and they are your counter-party to the contract. You are in affect an unsecured creditor to the business and exposed to their financial and business risk, including the credit risk associated with trading with their business.
Probably the only difference between true ECN’s and Market Makers (when used as commonly accepted definitions) is a true ECN passes [B][U]ALL[/U][/B] “trades” onto their hedge counter-parties to manage their risks. How this hedge counter-party deals with this is their business. You have no contractual or other legal relationship with you as holder of the CFD. Their hedge counter-parties are not liable to you and you have no legal recourse against them (because your broker acts as principal to you and not as agent) nor can you require your broker to take action against their hedge counter parties. Your broker is not authorized to disclose any further details about the Hedge Counter-party and is not responsible for third-party information about the Hedge Counter-party which may be available to you.
So your risk always remains with your broker, ECN or not, they are the principal for the CFD, they are, in effect, all market makers. The only way to bet this is to move to a prime broker or start trading futures instead.
Demo accounts do not have slippage (I saw that it was mentioned that they do) as the trades are not actually executed on the real market. Brokers who offer the least or 0 slippage should not be trusted as they most probably are market makers who usually trade against their clients and have hidden costs. Try to find a regulated ECN broker who has a fast execution and avoid trading during important news releases or big political events.
Yeah you are on the money there … those clauses are for the 90% of traders on their book who lose money and they profit from. The other 10% who trade big and win big though are passed on - if they’re left in house like the losers, it’s coming straight out of the brokers wallet and they don’t want that.
At end of the day none of it really matters - if you are profitable, find a good broker that pays you your profits each week/month whatever and stick with them. If you’re unprofitable - you have bigger things to worry about!