Knowledge point! Sliding point and double quotation in foreign exchange transaction
In foreign exchange trading, slip point and repeated quotation are the two things that most frustrate traders, because their appearance may lead to profit reduction or even loss.
The nature of the slip point: the difference between the initial request and the execution price
The order of a trader may be a market order or a standing order. Due to the change of price, the system can not execute the order accurately according to the price originally requested by the trader. The quotation used in the final execution of the order is more favorable to the trader. When the execution price is better than the quoted price requested by the trader, we call the sliding point positive.
The order of a trader may be a market order or a standing order. Due to the change of price, the system can not execute the order accurately according to the price originally requested by the trader. The quotation used in the final execution of the order will lead to the loss of the trader. When the execution price is not conducive to the profit of traders, we call this kind of sliding point as negative sliding point.
In the event of special short jump market, the sliding point may cause the trader's position to burst into a negative value.
Therefore, the slip point is essentially the difference between the initial request and the executed offer. There are many reasons for the slip point, such as market fluctuation, trading volume and other factors that lead to the rapid change of market quotation in milliseconds, the market quotation fault caused by insufficient liquidity, and network delay, etc.
Network delay. That is, the execution speed of the trading platform, which is one of the important reasons for the sliding point. Generally speaking, the trader obtains the quotation through the exchange where he / she works and displays it on his / her trading platform. After submitting the order, the customer submits it to the exchange through the server. When the system price triggers the transaction order of the customer, such as market price order, profit stop order, stop loss order and limit price, the system will find a match with the customer in the ECN quotation pool system The price is the customer's order. In this transmission process, there is often a relatively small delay, which may not be seen at ordinary times, or it may be just a moment (usually at the level of milliseconds). However, once the market price fluctuates violently, the market quotation will change. Once the server fails to handle it, the delay will occur. Different from the secondary confirmation such as "price has changed, do you need to close a deal" in the market maker platform, the ECN platform does not require the customer to make a second confirmation, but directly trades at the latest price. At this time, the transaction price may be slightly different from the price the customer wants to close.
Market quotation fault caused by insufficient liquidity. Liquidity can be said to be the air of financial market. A market without liquidity must be a market without vitality. Once a customer sells, there must be another customer to buy, so as to ensure the normal operation of the market. When the liquidity is insufficient, the trader can not get the best quotation at the right time, and the sliding point also occurs.
Market volatility. When the market fluctuates greatly, the sliding point is very easy to happen. For example, when some big things happen, the market price is extremely easy to be affected, resulting in the inability to order at the most suitable price. When the market fluctuates violently, it also means that the liquidity will be lower, which will make the order unable to execute at the original specified price. The maximum slip point usually occurs when something big happens. As a day trader, you should avoid trading when a major event occurs, such as during a Federal Reserve meeting. Of course, when there is a huge fluctuation in the market, it is very tempting for traders, but it is very risky to trade at this time. If you are already in the trade, you may be exposed to more risk than expected due to a large number of slip points.
LastLook。 Lastlook means that even if a trader's order matches the quotation of a liquidity provider, the liquidity provider can still reject the trader's order. That is to say, although the trader may have already click on the best quotation of the liquidity supplier, the supplier will still have a lastlook to see the trader's order and decide whether to execute the order according to the interests. In the case of market price list, your order will be closed at the second best price. The discussion of lastlook has always been controversial.
Of course, the occurrence of the slip point is not due to the above reasons. It may be that the irregular traders deliberately tamper. We call it abnormal sliding point, also known as asymmetric sliding point. This situation is often caused by some irregular dealers' malicious operation. In theory, the probability of a positive slip point is the same as that of a negative slip point, that is, the probability of you benefiting from or losing from the slide point is equal, which is perfectly reasonable. The asymmetric slip point, that is, the abnormal slip point, is the performance of the dealers' deliberate money laundering. Once the asymmetric abnormal slip point is found, the trading platform traders will be severely punished by the regulatory authorities. When a trader distinguishes between a normal slide point and an abnormal slide point, he or she can find several other analysis software or trading software and query the differences between different platforms at the same time point to determine whether it is a normal sliding point or an abnormal sliding point.
Repeat quotation is very similar to sliding point, which means that the dealer reneges on executing the order with the original quotation provided to the customer, and wants the customer to place the order with different quotation, and the quotation previously requested by the customer is no longer valid. For example, the bid price of EUR / USD is 1.3422, and the selling price is 1.3423. Trader a submits a market order at the selling price of 1.3423, but the trading platform may automatically re quote the trader to 1.3424.
Although this process may be different due to the different policies of trading platform traders, in essence, repeated sliding point will also produce more favorable or unfavorable quotations for traders.
"Supervision of both"
Once the regulator finds out the asymmetric sliding point or malicious repeated quotation, the dealers will be severely punished. In this paper, we will introduce how the NFA regulates improper slip points and repeated quotations.
CFTC approved the NFA in 2012 and issued the interpretative notice of NFA compliance regulation 2-36: foreign exchange transaction requirements. The regulation sets forth some requirements on the way of dealing with foreign exchange transactions of customers in the United States. It explains to dealers how to correctly handle the price changes of customers from submitting orders to executing orders. The relevant committees will take a series of disciplinary actions against dealers who violate the rules.
The Notice provides examples of asymmetric slide point settings used by dealers, which enable dealers to benefit from price movements but are not conducive to customers. If a dealer's slide point setting meets the example, it is a clear violation of NFA compliance regulations.
In order to avoid violating NFA rules when making price changes, dealers must comply with the following rules:
No matter how the market moves, traders must use the sliding point setting reasonably;
When the market is favorable, the dealer also needs to quote again if the market is favorable;
Before trading with a dealer, the client must know how the trader will handle price changes, and the dealer is required to provide a full written disclosure of his policy, including the information expressed in the explanatory notice.
When handling complaints about slip points and re quotations, the relevant regulatory authorities will check the reports, transaction records and other such data provided by broker members. In order to determine the degree of sliding point, and whether the positive and negative degree of sliding point is reasonable. In order to provide customers with fair transaction, the setting of sliding point must be symmetrical.