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August 10, 2020

Forex Brokers without Slippage - Know the Quality of Order Execution

Looking for a FX broker without slippage on orders? Here are some things that you should know.

Forex-Brokers-without-Slippage---Know-the-Quality-of-Order-Execution Forex-Brokers-without-Slippage---Know-the-Quality-of-Order-Execution

If the quality of order execution is low, the possibility that MT4’s EA (Expert Adviser) operation will not exhibit its original performance increases.

Since the result of EA operation of MT4 can be various according to the quality of order execution, you are recommended to choose your broker carefully.

In this article, we will explain the basic mechanism of execution, slippage and how to identify it.

Which Forex broker does not have the “Slippage”?

Are you looking for a FX broker which does not have a slippage on orders?

Slippage happens in any market and it is almost unavoidable, but there are certain conditions and ways that prevent “Slippage” from happening.

One way to prevent “Slippage” from happening is choosing an account with “Instant Execution”.

When orders are executed with “Instant Execution”, orders with certain amount of slippage will automatically receive “Re-Quote” which presents another price for the order to be executed.

You can practically prevent slippages from happening by not accepting the new offer of “re-quotes”.

Brokers such as FXPro, FXTM, Exness and FXGlory provide several account types including the ones with “Instant Execution”.

There are also some brokers which allow you to set “Deviation” on orders.

The “Deviation setting” can limit the amount of slippage that can happen on the order, and the order won’t be executed if the amount of slippage exceeds the pre-set amount.

The condition of “Slippage” is different depending on the broker and the account type you choose, and you are recommended to be informed directly by your broker regarding this condition.

And you can keep in mind that there are ways to avoid slippage on orders as explained above.

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What is Order Execution?

A contract is the execution of an order to buy or sell.

Quality of order execution means “the power that an order passes according to the displayed spread.”

In both automatic trading and discretionary trading, if “the quality of order execution is high”, it is easier to complete the order at the exact spread displayed.

In other words, the higher the quality of order execution, the less likely slippage (orders that pass at prices far from the listed price) will occur, and the fewer deal cancellations (the order itself will be canceled) caused by market conditions and accounts.

So why doesn’t the order go according to the displayed spread?

Why do slippages and deal rejections occur?

List of Forex brokers

4 factors that affect the quality of order execution

This article mainly discusses topics related to MT4 EA operations, but the basic idea is the same for any types of accounts and also for discretionary trading.

1. Rapid movement of the market

If an investor wants to buy 100,000 units of EURUSD for 1 USD, he cannot buy it unless someone sells at that price.

The amount of circulation in the foreign exchange market is enormous, and at normal market prices, most of the items are sold around that price.

You can buy as you want or at a price close to what you want.

However, immediately after the announcement of economic indicators and the remarks of dignitaries, when the price movement become sharp by breaking through the price range that was seen as a turning point, people who want to buy and sell at the same price flood in, and there are cases where you can’t buy at the price as displayed.

This is a common cause of slippage or order rejection.

In response to such a sudden price movement, if the Forex company side has a lot of market liquidity, there are many options and it becomes easier to sell and buy at the price you want.

In addition, the speed and distance of the FX broker’s server itself to connect to the foreign exchange market are also important, and these factors are collectively expressed as “high execution quality”.

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2. Thin market liquidity

After European and US markets closing, if there are few market participants, there are few people selling and buying at any price, and you may be forced to buy and sell at the worse prices than the displayed price.

Such a state is referred to as “the market liquidity is thin or shallow”.

Even for an EA (MT4 automatic trading program) with a very good performance, slippage is likely to occur and the actual operation result is often worse than backtesting, after European and US markets closing

This is a typical example of thinness of the market liquidity.

List of Forex brokers

3. When a large number of orders are concentrated

As already mentioned, the scale of the Forex market is huge, but the number of positions that can be traded at a certain price is not infinite.

So of course, there is a cap on the amount of orders that one Forex company can handle.

MT4 EA trades with the same logic no matter who uses it, so if it is an EA used by thousands, the same order will be concentrated on the same currency pair.

If the companies used by the users of the EA are biased, the amount of orders that can be processed by the Forex company will be exceeded at that moment, and it will not be possible to execute the contract at the displayed price.

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4. Slippage intentionally caused by FX company

The factors mentioned above that are not executed according to the stated price were unavoidable due to the market order volume.

On the other hand, there are times when forex companies willingly buy and sell at prices that are worse than the displayed ones.

In fact, this is not necessarily a rule violation.

Most Forex companies that we can trade have a mechanism called OTC (Over the Counter).

This is where investors buy and sell positions at the prices offered by Forex companies, and have the same aspects as general retail where Forex companies sell at a cost plus a commission.

Because of this aspect, there is a spread offered by the Forex company first, and the quality of order execution of how much slippage will occur from there will be an important factor in trading.

List of Forex brokers

How Execution Quality can affect EA operations

As mentioned earlier, FX orders cannot be fulfilled without a partner.

You need someone to sell when you want to buy, and someone to buy when you want to sell.

Therefore, depending on the movement of the market, slippage will inevitably occur and you will not be able to buy or sell at the displayed price.

In other words, slippage always happens somewhere and the fill rate is never a 100%.

The quality of order execution is important for both automatic trading and discretionary trading, but here we will explain how it affects MT4 EA operations.

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1. Actual operation result is worse than EA back test result

When operating an EA, the basic theory is to backtest (test the EA with past quotes to see how it will perform).

It is judged that it is possible to operate by putting in actual money because it is a test result of a certain grade or more.

Backtesting is based on historical data.

In other words, since slippage is not taken into consideration in principle, there may be good results compared to the case where slippage occurs in actual operation.

Similarly, actual operations tend to perform worse than demo trades where slippage does not occur or is less likely to occur.

And the lower the quality of order execution, the more prominent this tendency becomes, and there is a gap between the test result and the actual result.

List of Forex brokers

2. Spread resistance of EA deteriorates

There is a wide variety of items to evaluate an EA, but one of the important ones is spread resistance.

This can be judged by the expected gain (margin per trade).

The smaller the margin per trade, the greater the share of spreads.

This is referred to as “low spread resistance”.

On the other hand, if the profit margin of one trade is large, the spread ratio will be relatively reduced and the effect will be small, thus the spread resistance is high.

If the quality of order execution is low and you buy and sell at a price that is often worse than the target price, it will negatively affect spread resistance and the EA that did a good job in the back test will not be able to perform as well.

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Improve the quality of execution with VPS

VPS stands for Virtual Private Server, and it is an necessarily tool for all EA users.

It may be easier to understand VPS if you imagine Windows running on the Internet.

Since it works on the Web provided by the broker (or the provider), not on your own computer, by installing MT4 in it, all transactions will be completed on the Internet without going through the local servers.

Here are some features of VPS.

1. Communication speed is fast
Since VPS connection does not go through a personal computer at home or the Internet environment, orders for EA operation can be passed quickly. In addition, basically there is no element such as delay due to time zone, and communication speed is stable.
2. No physical trouble
For example, there is no interruption of the line or computer due to physical factors such as when something hits the computer and the power is cut off, the computer stops due to a power outage, or the router cannot work for communication.
3. VPS usage fee will be charged
Since a VPS server is rented for automatic trading, the monthly fee is about 20 USD to 50 USD. However, depending on your thinking, it may not be expensive, and many online Forex brokers offer VPS service for free with certain conditions.
4. Save electricity and other costs
Since the automatic trading basically keeps running for 24 hours, if you keep your PC running at home, you will be charged for electricity. Also, long-term operation will shorten the life of the PC. Considering the replacement of a high-performance PC every few years, it may be cheaper in some cases.

Many online Forex and CFD brokers provide VPS service for free with some conditions.

To obtain VPS, you may first contact your broker and see their conditions.

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