Hi, I have a question that was not answered in the School of Pipsology.
I’ll take an example that just happened to me, twice.
I enter a trade using limit order, not market, buying/selling 2 lots usually.
How come when looking at the summary, I am instantly down about 70$? as soon as I buy sell I am instantly losing.
Could someone please explain why is that happening, is it the spread?
I use FXCM 
Thanks in advance.
It’s because of the spread. Check how wide your spread is on the instrument you’re trading, it will probably account for this.
Yes, it’s because of trading spreads! It depends on the brokers spreads feature.
Aside from spread, limits are by definition against the market, the order is buying when price moves down on sells or selling when price moves up on buying.
Limits are used by deep pockets, drawdown is meaningless, perhaps try stop orders around some mid levels, perhaps you ID Asian hi/lo and wait for price below, then a stop order above mid Asian if a buy, v/v for sell.
Less drawdown, SL outside of session, less loss if wrong.
Edit: means your entry is with the market, not against.
as everyone has already said
- The Main reason is SPREADS, this is how the broker makes money
- another one that was not stated is COMMISSIONS, this is another way the broker makes money
- Then you have to understand how PENDING ORDERS work
here is another point of view as well
if you have a trade open and you want to take profit at 10 pips
and the spread is 3 pips
you will instantly enter the trae -3 Pips
so TECHNICALLY SPEAKING, you actually have to achieve 13 pips to achieve your 10 pip goal
does that make sense ?
Not quite right, Martin. You have the underlying principle right, and it’s true that you’ll effectively need 13 pips to clear 10 pips profit, if the spread is at 3 pips both when you enter and when you exit, but your immediate position will actually be -1.5 pips, not -3 pips, on entry. Half the spread.
The standard default settings for charting etc. (unless you choose the change them in your own software) are for “middle prices” to be shown. So the price at which you enter should be half-way between the bid and the ask. And the same when you exit.
You therefore effecitvely lose half the spread on entry and half on exit.
For example, if you trade EUR/USD with a 1-pip spread, the second you open your position, if the price hasn’t moved at all, you’ll be -0.5 pips, not -1.0.
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@LukasVisser
Yeah… for sure… You are 100% correct
However, i was just speaking very very generally and intentionally not wanting to go into detail so as to not confuse him.
but, You’re right.
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Hmm - Well when I open a trade with my gambling shop, an upbet will start at the ask and the loss will already be calculated down to the bid. The bet closes when the bid crosses the value of my “TP” or the “SL” - so my loss is “Built in” to the calculation. The P/L shown on my screen is not adjusted at the close - but YMMV of course.
It is because of the spreads. And spreads varies to broker to broker and account type to account type. According to your need you have to choose your broker and account type. Spread is two types fixed spreads and variable spreads. Choose what you want.