Understanding slippage and the consequences of unfair execution – Guest editorial

Jon Grah

“Perhaps for some brokers, STP has another meaning: Straight To Pocket.” – Jon Grah, CEO, AwarenessForex

Brokers can unfairly insert execution delays on several order requests, creating massive slippage.

Clients (mainly traders and asset managers of derivatives brokerages) invest significant time to develop and deploy strategies that will hopefully generate profit. A derivatives broker is expected to execute client trades in the best interest of their clients, which includes not trading against their clients.

Not only is this professional behavior, but it is also a legal requirement of MiFID 1/2 and equivalent laws that outline how brokers should handle their fiduciary responsibility to their clients.

A client expects that their chosen forex Straight Through Processing broker will act in the best interest of their clients first when handling their orders. This would include executing a client’s order as fast as possible without trading against their client. This includes:

1.Frontrunning their order

2.Giving asymmetric slippage

3.Providing false or misleading prices

4.Not safeguarding client funds (mainly via segregation)

5.Causing asymmetric or artificial order delays between different clients or different accounts without a specific reason (technically bait and switch, but also related to asymmetric slippage).

Lets watch and see what happens when an offending broker intentionally delays orders:

When a broker trades against their client’s instructions, it does more than cause a client to potentially generate [greater than usual] losses. The losses can then have a domino effect in causing either clients and/or other stakeholders (hedge fund, private equity, pension funds, allocators, etc) to lose confidence in the trader/asset manager. The trader could be blamed or the track record that took months or years to build is irrevocably tarnished.

Perhaps for some brokers, STP has another meaning: Straight To Pocket. AwarenessForex research team keeps a private list of who’s who for brokers, taking into account the likelihood that a broker will abuse their position. And it goes well beyond a simple regulation check.

How fast should orders be executed? Do you think a 3 minute delay to execute an order is too long? Have you experienced broker order delays or other forms of negative order manipulation?

Jon Grah is  the CEO of AwarenessForex, and is a highly experienced developer of fully automated trading signals which are designed for managed accounts, hedge funds and proprietary trading firms. He has extensive experience over several years in developing automated strategies and working with brokers and high net worth individuals globally, and has been an active research and development professional in several MT4/MT5 price action move indicator projects.

Read this next

Digital Assets

Silvergate dismisses speculation of trouble, says BlockFi exposure is minimal

Crypto-friendly bank Silvergate Capital claimed on a Tuesday blog post that it had minimal exposure to crypto lender BlockFi, which filed for chapter 11 bankruptcy protection this week.

Retail FX

Fidelity launches crypto trading for retail investors

Fidelity Investments, one of the largest brokerages in the world, has officially rolled out a commission-free crypto trading product for retail investors, starting with zero-fee trading for Bitcoin and Ethereum.

Digital Assets

ECB head calls for tougher crypto regulation after FTX collapse

President of the European Central Bank, Christine Lagarde, has called on lawmakers to start working on fresh crypto regulations to protect the financial system after the collapse of the FTX exchange.

Retail FX

CySEC updates rules for regulated brokers’ cross border activity

As CySEC’s attitude of adopting more stringent licensing guidelines and operating regulations becomes ever clearer, certain aspects of the rules and operations start to come into sharper focus.

Market News

Outlook for Gold: Can the Precious Metal Regain Power?

Gold set an all-time high at $2070 on March 08, 2022, when the price skyrocketed amid investors’ worries about the military conflict in Eastern Europe.

Crypto Insider

2022 Islamic Finance recap: as the space continues to evolve, blockchain stands to play a big part

Despite the global economy being ravaged by turmoil induced by the Covid-19 pandemic over the last couple of years, the Islamic finance industry has emerged relatively unscathed

Crypto Insider

Decentralized Exchanges and Pooled Trading Platform Applications

Decentralized exchanges are one-way blockchain companies take back the power of value creation.

Crypto Insider

How to maximize the safety of your digital tokens?

Digitalization is the future of the investment world. These are the most preferred and growing investments in the world.

Institutional FX, Interviews

FIA EXPO 2022: Interview with Trading Technologies

The derivatives trading industry has gathered in Chicago to attend the FIA EXPO 2022 on 14-15 November. 

<