Currency Trading

Tuesday, June 30, 2009

Dealing desk policies, rules and procedures

GCI Dealing Desk Execution and FXCM Auto-execution or No Dealing Desk Execution compared


The situation at the dealing desk


Orders from different member brokers are enqueued in a central computer on first in, first filled basis. Stops, Limits and Market Orders are executed at the next available price.


Sample postings of Buying and Selling orders


Buying // Selling


Price Lots // Price Lots


2.0004 40000 // 2.0007 35000

2.0003 25000 // 2.0008 45000

2.0002 50000 // 2.0009 65000

1.9992 75000 // 2.0019 60000


Possible trading scenarios


1. Client clicks a Market Order to Buy 100000 lots -- He is filled 35000 lots at 2.0007, 45000 lots at 2.0008 and 20000 lots at 2.0009. Immediately, the quotation is changed to now Selling at 2.0009.

With the sellers at 2.0007 cleaned out, new Limit Orders are enqueued at their limit price but Market Orders and Stop Loss Orders are executed at the next available higher price, immediately.


At this point in time, it is possible that other brokers and traders might then opt not to wait, and instead be the first to hit up at the next high price. If the next price is cleaned out, brokers’ limit orders would be out of market and left unfilled. The price may or may not come back down.


In this scenario, if we had placed an order to Buy at 2.0007 or 2.0008 even as 2.0007 was still being transacted, we would not be filled because there is no longer a Seller at that price. Instead, we would be requoted at the new price, which is 2.0009. If we placed a market order with our trading mode set to At best on the FXCM platform, then our order will be filled at the next best price.


If we had set our Stop at 2.0008 to Cover a Short position, again, we would not be filled at 2.0008 but at 2.0009, provided that we are next on queue. Should there be others ahead of us, we might get Closed at much higher, wherever our order can be matched. If the next Seller as in this example is posted at 2.0019, then our position would be Closed at that high price.

If Buyers in panic should Buy everything offered up to the price of 2.0055 and the next Buyer after they are done buying is only posted at 2.0030, it is possible that a Seller might Sell down to his low price right after. Gaps happen all the time and not all prices in between are transacted. We should exercise extra caution in such panic situations.


Take note that there are other member brokers and other traders that may be posting orders before our own kicks in or are triggered. They will move us farther and farther in the queue, even as they will be filled in the order that other Buy and Sell orders come.


2. Conversely, if a client clicks a Market Order to Sell 100000 lots, then chances are that our late orders to Sell will only be executed at 2.0003 and lower. Everytime, our orders can only be attended to based on their position in the queue.


3. During Breaking News and the release of significant economic reports, sometimes prices spike some 50 pips and more, even as much as 200 pips. The above examples will likely occur, but with much greater slippage.


4. Scalping is the act of attempting to profit from a surge or plunge in price. An example is to Limit Buy or Buy at Market immediately after the announcement of a positive news. But everyone usually has the same idea. So big orders flood in, hence the sharp surge. If others were able to place their orders ahead of us when the price was say, 2.0001, our Limit Buy will likely not be filled and our Market Order could get filled at 2.0051 and higher. Anything wild can and does happen during panic situations.


If we set a Stop at the same time as our Buy order, we could get filled high. At some price, the Buyers will be satisfied and Selling will come in forcing down the price. If our Limit has not been reached or even if it manages to trade at our Limit price, but there are plenty of Sell Orders ahead of us, we won't be Sold at our Limit but we could be Stopped when the price turns down. Everything will depend on the queuing order.


5. Bad prices are the unwarranted spikes and plunges seen in the charts, sometimes as much as hundreds of pips. Many of these are broker errors. But whatever the reason, they are followed by an immediate return to the true going price. For this reason, some brokers employs dealers who execute orders manually, and does not rely purely on automatic order execution by computer. If a price surge is determined to be a bad price or quote, then our Stop or Limit will not be executed.


Had broker dealing been on automatic, we could have Sold at a high price but on the other extreme, we would have been Closed out. So the Manual Dealing in place by some brokers is also for the trader's protection, to prevent his incurring great and unwarranted losses in the event of irrational price moves against his position.


GCI controls


All orders are timed and logged in to the GCI computer. In the event of a complaint, the records are accessed and the error, if any, can be verified. The owner-trader only needs to send a request for an audit of the questioned transaction together with a short narrative complete with details and a screenshot, if possible, of his trading platform.


Recommendations


1. Prefer to trade the European currencies between NY closing and Europe opening. There won't be too many surprise news or trend-reversing announcements. If possible, especially if not very confident in your position, Close them before expected announcements or releases of economic reports.


2. Do not try to trade on the news or profit from surges and plunges in prices. Position early and get out early before panic situations. Especially, never place Entry Stop Orders where slippages are very possible.

3. In the event that you suspect an error was made, you should ask for an audit by GCI. GCI will investigate and where GCI is at fault, the appropriate amount will be credited to your account.


These policies, rules and procedures are standard practice by most all International Forex Brokers. With few exceptions, complaints of similar nature to the cases cited above by new and inexperienced traders who are not familiar with these policies, rules and procedures are completely unjustified and without merit.


For inquiries, send email to: forex300club@gmail.com


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posted by Angel Luz - Inner Quest @ 9:00 PM  

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