How To Deal With Order Fills In Volatile Markets
Getting a good fill can be tricky when the market sees a huge move in a specific direction. This video talks you through how to react and navigate it...
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We have a quick question from a subscriber who asks about order fills and says that with where we are right now in terms of Brexit negotiations, we've entered into a bumpy phase, and asks if we do get a no-deal scenario over the weekend that will most likely see a huge one-way sell off in the GBP, and if everybody’s selling the GBP how are you going to get filled on a sell order if it happens.
So, this is a great question, and there is a couple of important points to consider here. Getting a good fill or any fill for that matter can be tricky when the market sees a huge move in specific direction, like we had back in 2016 with the referendum.
Now, what happens of course when we see things like that happen, those big shocks, we usually see a steady pick up in volatility which means your spreads will get spiked by the brokers, don’t get mad at them for doing that though, they need to account for increase volatility just like we do.
So, to your question, I think the first part is important to talk about, in terms of the market’s reaction in terms of massive selling or buying pressure. When you are trading an instrument that has very low market participation of very thin liquidity, think of a less known stock or an ETF that isn’t very well known or a currency pair that has two highly volatile emerging market currencies paired together, with those type of instruments getting a fill in those type of environments is going to be difficult, as the spike in vol and the one-way traffic means there is much fewer liquidity to get any fill or to get a good one at least.
But, when it comes to the spot FX market, that issue is drastically reduced, because the sheer volume of trades at any given moment means there will almost always be enough liquidity for you to get a fill, yes the spread might be higher, but in an environment where it’s something that causes the market to run 300 or 500 pips the spread isn’t going to be an issue, of course if you are trading with a bad broker it might be a bigger problem, but generally the liquidity should be more than enough for you to get a fill.
That’s also where market making comes in to and a big difference between institutional trading and retail trading. Everybody always slams the market makers, and yes some of them are doing unscrupulous business, but traders often dismiss the clear advantage of trading with a market maker, because if you are a retail trader on their b-book, they will almost always be willing to take that trade on their books to make sure the order gets executed if there isn’t enough counter-liquidity at that time.
Remember that for big institutional traders, trading with their size of contracts getting a fill is a real problem in those type of environments, but for retail traders that problem is significantly reduced because the size of our orders, even with large accounts, isn’t really a drop in the bucket compared to the big guns out there.
So, I wouldn’t be too concerned about that to be honest Gavin. If it’s an event that is so big that the market keeps on dumping or ripping for hundreds of pips it shouldn’t be a problem with a retail trading account. Hope that helps with the question, any others just let me know.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a quick question from a subscriber who asks about order fills and says that with where we are right now in terms of Brexit negotiations, we've entered into a bumpy phase, and asks if we do get a no-deal scenario over the weekend that will most likely see a huge one-way sell off in the GBP, and if everybody’s selling the GBP how are you going to get filled on a sell order if it happens.
So, this is a great question, and there is a couple of important points to consider here. Getting a good fill or any fill for that matter can be tricky when the market sees a huge move in specific direction, like we had back in 2016 with the referendum.
Now, what happens of course when we see things like that happen, those big shocks, we usually see a steady pick up in volatility which means your spreads will get spiked by the brokers, don’t get mad at them for doing that though, they need to account for increase volatility just like we do.
So, to your question, I think the first part is important to talk about, in terms of the market’s reaction in terms of massive selling or buying pressure. When you are trading an instrument that has very low market participation of very thin liquidity, think of a less known stock or an ETF that isn’t very well known or a currency pair that has two highly volatile emerging market currencies paired together, with those type of instruments getting a fill in those type of environments is going to be difficult, as the spike in vol and the one-way traffic means there is much fewer liquidity to get any fill or to get a good one at least.
But, when it comes to the spot FX market, that issue is drastically reduced, because the sheer volume of trades at any given moment means there will almost always be enough liquidity for you to get a fill, yes the spread might be higher, but in an environment where it’s something that causes the market to run 300 or 500 pips the spread isn’t going to be an issue, of course if you are trading with a bad broker it might be a bigger problem, but generally the liquidity should be more than enough for you to get a fill.
That’s also where market making comes in to and a big difference between institutional trading and retail trading. Everybody always slams the market makers, and yes some of them are doing unscrupulous business, but traders often dismiss the clear advantage of trading with a market maker, because if you are a retail trader on their b-book, they will almost always be willing to take that trade on their books to make sure the order gets executed if there isn’t enough counter-liquidity at that time.
Remember that for big institutional traders, trading with their size of contracts getting a fill is a real problem in those type of environments, but for retail traders that problem is significantly reduced because the size of our orders, even with large accounts, isn’t really a drop in the bucket compared to the big guns out there.
So, I wouldn’t be too concerned about that to be honest Gavin. If it’s an event that is so big that the market keeps on dumping or ripping for hundreds of pips it shouldn’t be a problem with a retail trading account. Hope that helps with the question, any others just let me know.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
