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Beware of the Hidden Spread Your Forex Broker is Charging You

17 Years ago | June 09, 2014 10/1/22, 12:00 AM

I was once told by a broker to look at the executed spread (i.e.at what price your trade is actually executed at) and not what a broker claims to be its bid-offered spread. I didn't think much of it at the time but have come to realize that what he said was true. I can speak about this from experience.

I have written about this before and what prompted this article was a post in the broker review section on global-view.com. It involved large slippage on a trade after the U.S. Employment report.

This reminded me of a similar experience I had recently. I was testing out a new broker. Just after a major economic release, I hit a EURUSD bid on a market order trade and got filled nearly 10 pips below my sell level. In this case it had to do with latency in the broker feed on my platform (note in market executions your order gets filled at the price quoted when it hits the broker's server). I have a new computer so the issue seemed to be on the broker side.Now imagine if the slippage worked against you on both sides. You sell at 50 but get filled at 40 and then try to buy at 40 and get filled at 50. You think you made 10 pips but wind up losing 10 pips. This may seem like an extreme case but it illustrates what I mean by executed spread. It is what spread your trade is actually executed. This is the true spread vs. what a broker claims is the spread.

The reason I am pointing this out is you need to take note how much difference there is between your market orders (and stops) vs. where they are actually executed. If it is too glaring then you have a decision to make. Otherwise be aware of when and under what conditions slippage tends to take place and adjust your trading accordingly.

What I look for in a broker is consistency, both in pricing and executions. You can trade on a 20 pip spread  or any type of spread if it was a consistent one. What we don't want are surprises that turn a 10 pip profit into a 10 pip loss. Note the executed spreads.

 

Jay Meisler, founder

Global Traders Association

 

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