Does your broker keep you from being stopped out too soon? Read the full article here
Every trader knows the pain. You’ve done your homework, studied the charts, checked the news – everything looks good. And you’ve put a protective stop on your trade, just in case.
But sometimes, the unexpected happens – like a flash crash, volatility at the market open or wild swings around a Fed announcement. Spreads widen dramatically and your stop order is triggered. When the market recovers moments later, it’s too late – you’ve been stopped out.
If that’s happened to you too many times, you might want to take a closer look at the way your broker executes your orders – especially the way stops and close-outs are triggered. How your broker pulls the trigger for you could have a major impact on your bottom line.
How most brokers trigger your orders
Today, many brokers – including those offering the MT4/MT5 platforms – execute stop orders by triggering them on the leading side of the spread – so if you’re long and set a stop to sell, your stop will trigger on the bid price; and when you’re short, your stop will trigger on the ask price.
In orderly markets, that’s all well and good. But when volatility hits – and it will – this trigger method can have some pretty painful consequences. In volatile trading, bids can disappear quickly as buyers pull their orders – and when stops are triggered on the bid and executed at the next available price, market moves can become exaggerated, spreads can widen and you could find yourself stopped out too soon, at a very unfavourable price.
How Saxo triggers your orders
To avoid those “too-soon” stop-outs during market volatility, you need stops that keep you in the market longer. That’s why, at Saxo, we trigger your forex stops on the opposite side of the spread – that is, the trailing side. So, if you’re long, your sell stop will trigger on the offer price – and you won’t be stopped out so easily by those whipsawing bids.
And for even more protection, we trigger all stops based on a neutral price from a primary inter-bank venue – this ECN feed is wider than our own bid/offer spread, it’s less prone to sudden moves and provides a much broader, more consistently present set of liquidity.
To see how this can keep your positions safer, read the full article with tangible examples and a full explanation below.