I write you because I have a question, that I don’t know whether I’m right or not…
I have a variable spread account in a market maker broker (GKFX), I live in Spain. So, when there’s some important news like the PMI in UK, or the NPR in USA, yesterday September 2nd, the spread is triggered… but I don’t know if is triggered in the two ways: lower (bid), and higher (ask)… A lot of times, I think that the spread is increased only towards upside keeping the bid price fixed, and viceversa, keeping the ask price fixed, only is increased the bid price towards lowside.
So, is this legal?
I live in Europe, in Spain, but I think this is for all the people operating spread variable accounts around the world… in that way, a lot of accounts can be blown, in my opinion… if you have most of losses for short trades the spread is increased only towards upside, and if you have most of losses for long trades the spread is increased only towards downside…
Please, let me know, I’m not sure about this issue, a lot of people agree with me that it’s not legal, so is a scam, some people say this is fully legal… even knowing in that way accounts are blown.
First, I’d say “I think that…” isn’t enough to go on. You’d really have to document the spread changes to see if there is a specific pattern.
Generally speaking, if a market maker expects an increase in volatility they will widen the spread on both ends. That’s if they have not net position on their books. If, however, they do have a net long or short balance then they are likely to skew their bid/ask spread to reflect that. This is basic risk management on their part. Nothing illegal about it.
I believe this illustrates what you mean. The bid price drops a lot and the ask price remains at around the same level. So for clients, long positions suffer and short positions barely change.
The floating spread doesn’t suit everyone as it can grow wider when the market is highly volatile. At a different time the spread is quite narrow, so it’s an ideal condition for scalping.
From my perspective spread widening is a logical and normal behavior when there are news release. At that time you can expect some rapid price movement based on the outcome from the news (like on the pic of Koneko Trades). The other option would be to trade with a broker with fixed spread but then most probably news trading wouldn’t be allowed.
