On weekend gaps, if the price at the opening is better than your limit, you’ll get a deal only at your limit, and not the best possible price in the market. This applies for most brokers. Such gaps occur also on surprising news releases.
Now FXCM commits to give the best possible price – positive slippage. Here are the details, with an example. Do you think that regulation is necessary here?
An example of positive slippage
On Friday, June 18th, EUR USD ranged between 1.2340 and 1.2416. Let’s say that after the pair went towards the bottom of the range, you went long at 1.2365 and left with an order to close the position at 1.2410, under the daily high.
Time passed by, and the markets closed with EUR/USD at 1.2388, leaving you with an open position. Over the weekend, fresh optimism arrived at the markets, and the opening price for EUR/USD was 1.2443 on Sunday, June 20th.
With many brokers, your order would trigger at 1.2410, closing a profit of 45 pips. But this price wasn’t available at this time. The price was 33 pips better. Now, traders of FXCM would close this position with 78 pips of profit – much better.
As far as I know, this improvement to limit and limit entry orders isn’t common in the forex industry, and is usually limited to ECN brokers. By adopting this approach, FXCM’s No Dealing Desk leads the way for other brokers. FXCM is one of the biggest brokers out there.
Positive slippage happens more often than you think
This “positive slippage” practice is common in the stock markets, but is quite new in forex. The continuity of trading in forex makes these cases less common than with stocks, but as we’ve seen recently, weekend gaps happen many times.
Gaps occur also on big news events. GBP/USD jumps in both directions on news events, and so does USD/CAD. The Euro made leaps on credit downgrades and also on surprising US data.
Further reading:
- Francesc Riverola discusses this issue after weekend gaps in April left traders puzzled.
- Serious regulation is necessary to make forex more mainstream. Do you think that regulation is necessary here?
Full disclosure: FXCM is one of the advertisers on this site, but wasn’t involved in this article. I’ll be glad to report about additional brokers that support positive slippage.
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