“Last look” execution for banks only? Not anymore! dealCancellation enables retail FX traders to pull out of trades with no loss

For retail FX traders, having confidence in their trading decisions is of great importance.

Indeed, placing an order via a retail FX platform for many retail traders can be a daunting task, especially in such a liquid market in which trades are leveraged on the live market, making the traders’ capital work harder and achieve higher returns if a trade goes in the traders’ favor, or exposing it to exponential losses if a trade closes in the counterparty’s favor.

No matter whether traders are opening positions in a live market via a brokerage that processes all orders directly to the liquidity provider or with a warehouse brokerage, the potential losses that can occur from an erroneous trade or an open position that in hindsight perhaps should not have been opened are often enough to dissuade retail traders with smaller capital amounts (the average retail trader’s total deposit amount is $3,800 in all markets except for the US) to cease trading altogether, meaning the loss of a potentially long term customer for the brokerage.

This is a matter that many firms could bear in mind when considering that banks – the providers of Tier 1 liquidity to the entire global FX industry – have long been practicing ‘last look’ execution, which means that the bank is allowed to pull out of a trade if it is not going in their favor. This practice is controversial and has raised many a question among regulators, ECNs and institutional firms alike over the years, as described by FinanceFeeds in a full investigation into interbank last look execution practices last week.

The lack of transparency that last look execution has caused in the markets is a moot point, however it is only a lack of transparency because being able to back out of a trade if it is not going in their favor is currently an activity reserved solely for the banks, giving them an advantage over everyone. Until now.

Retail FX brokerage easyMarkets has now introduced a new feature to its trading environment called dealCancellation, thus bringing privileges usually reserved for bank desks to the retail trader, and addressing the matter of being in a position when ultimately that was not the right position to take.

FinanceFeeds spoke in detail this week to Nicolas Shamtanis, Chief Retention Officer at easyMarkets in order to closely examine and exclusively report the launch of the new dealCancellation feature which allows traders to cancel or back out of their positions within one hour of a position being opened.

Mr. Shamtanis explained to FinanceFeeds “dealCancellation is a new feature available within easyMarkets platforms that allows clients to cancel or back out of their positions within an hour after a position is opened. This is a promising game changer in the industry, as it can enhance risk management and trading psychology.”

Going live tomorrow with its rollout initially in Australia, closely followed by all other global markets, easyMarkets is looking forward to creating a confidence-inspiring new feature for retail traders.

How does it work?

As far as functionality is concerned, dealCancellation is effectively an option connected to the deal itself, therefore when a trader buys a spot deal, he is also buying an option to hedge the downside, in exchange for the cost of the premium. The premium is calculated based on market volatility.

With regard to implementation to the trading environment, Mr. Shamtanis explained comprehensively how traders can pull out of open positions with no loss “When a trader enters his trade details on the platform, he can choose to activate dealCancellation from the get-go, which means that he already has the option to cancel this trade as though it never happened in the first place. Of course this comes at a small fee based on market conditions, which is usually less than the loss that might be incurred if the trade hits its stop. This way, the trader may minimize his losses to the cost of the dealCancellation feature versus the full loss on the trade” he said.

“This feature comes in handy when one wants to trade a news event, for instance. Even with all the technical and fundamental analysis, it can be difficult to predict accurately how an earnings report or central bank announcement might turn out and how the markets could react. These uncertainties can be enough to discourage a trader from trying to grab pips off a top-tier market event, thereby preventing him from taking advantage of profit opportunities as well” – Nicolas Shamtanis, Chief Retention Officer, easyMarkets

easyMarkets considers that by using the dealCancellation feature, the risks involved in trading major market catalysts may be reduced. If a trader is caught in the wrong side of the markets, he can simply cancel the trade instead of letting his account incur potentially larger losses. This may also allow the trader to set wider stops to make room for volatility or large spikes, helping him stay in the trade for much longer and weather the noise until price eventually moves in the direction of his trade.

Advantages for trading psychology

Mr. Shamtanis then explained how having an option to cancel trades when positions are opened reduces the fear of participation by retail trades “The fear of losing can be crippling when it comes to entering new trades or taking on more risk, particularly for beginner traders” said Mr. Shamtanis.

“This may lead to common trading mistakes, such as setting stop losses too tight and not giving the trade enough leeway, setting stops too wide and therefore not having a desirable return on risk, or missing out on valid high-probability trade setups” he explained.

“dealCancellation may eliminate these issues in assuring the trader that he will be able to change his mind and back out of a trade within an hour after it is opened. This lessens the hesitation involved in deciding to enter a trade, enabling a trader to be more proactive in the markets and worry less about large losses” – Nicolas Shamtanis, Chief Retention Officer, easyMarkets

Another aspect that is integral to the ethos of easyMarkets’ implementation of the dealCancellation feature is that it may also allow the trader to set more appropriate stops based on market volatility rather than keeping them too tight and making the position vulnerable to sharp corrections.

That way, in case price doesn’t move in the trade’s favour, the trader is able to decide whether he would like to cut his losses by closing early or choosing to cancel the deal. In other words, the downside to the trader is limited to a small amount while the upside is kept open.

It’s also worth noting that if you hit your stop loss before the expiry of the dealCancellation’s 60-minute window, you still get your initial investment back as long as you’ve protected your trades with dealCancellation upon opening.

“Decision-making while managing an open position can also be made simpler with dealCancellation, as traders are often bogged down by making several calculations in terms of limiting their losses or pressing their advantage. Having dealCancellation in place offers a better option when it comes to exiting a losing trade early instead of leaving the position to keep bleeding as price continues to move against it” explained Mr. Shamtanis.

“This feature is ideal for day traders or scalpers who have to think on their feet but can often be bombarded with a lot of market information to process, causing delays when they need to cut losses. In some cases, hoping that price can eventually turn around and move in the trade’s favor also leads to longer decision-making, possibly exposing the trade to larger losses as the minutes or seconds tick by. If a trader finds himself in this scenario with a trade that’s protected by dealCancellation, he can make the decision quickly and move on to other trade opportunities” he continued.

For more experienced traders, dealCancellation can also reduce the fear involved in trading multiple or larger positions. Traders who want to increase the stakes by pressing their advantage on a trade or making bigger deal sizes can do so with the assurance that they can cancel these trades if the market doesn’t turn out in their trade’s favor.

Clients are also able to explore new trading strategies or try out new securities while managing the downside in case they make mistakes. easyMarkets offers this feature on currencies, gold, silver, and oil. Having these options available to the trader can also help him improve his trading metrics such as the average loss per losing trade, expectancy, and maximum drawdown.

More often than not, these numbers are affected by trades hitting their full stop loss and influence the trader’s bottom line profitability. In reducing the losing side of the equation, improved trading metrics can also do wonders for a trader’s confidence and appetite for risk.

dealCancellation terms and conditions

“dealCancellation© Option is an ORE patent pending under the patent “Easy Cancellation Option” application number 62334455.”

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).