Order Execution Policy
When opening a trading account with a Forex broker, the trader must first acquaint themselves with the Trading Operating Procedures. This document outlines the rules for carrying out transactions, as well as specifying the legal grounds for resolving disputes between the client and the Company.
Only a small number of clients study the Procedures and Client Agreement that they have accepted when registering on the broker’s website. As these documents establish the trading operations in general terms, sometimes even experienced traders may face difficulty understanding exactly how their orders will be executed in different market situations.
To address this, we have developed an Order Execution Policy, aiming to educate clients about the most challenging aspects of conducting operations on trading accounts opened with xChief.
Slippage on stop orders (Buy Stop, Sell Stop, Stop Loss)
One of the most common questions asked by beginner traders is, “Why was my stop order executed at a different price than the one I set it at?”. To truly grasp the reason for this, it is helpful to first understand what a stop order is. In practise, a stop order is a request to sell or buy an asset at a set market price. However, executing a stop order requires agreement between both the buyer and the seller on the price. Hence, it is impossible to execute the stop order at a given price if a buyer or a seller for that price cannot be found. To ensure execution nevertheless, the order will be executed according to the gap price, which is the first available price near the stop loss price. This means that stop losses will sometimes execute with a negative slippage.
Positive slippage on limit orders (Buy Limit, Sell Limit, Take Profit)
For limit orders, the opposite logic applies. Limit orders can be executed at the client's price or at the best price available. That means that in case of getting a limit order in a gap, the broker will execute the order at the "gap price" (i.e. at first available price), which will bring the trader an additional income in the form of a positive slippage.
The speed of order execution during the publication of economic news
On average, the speed of client order execution, from arrival at the trading server until confirmation is sent to the client, is 100 ms. However, due to the off-exchange nature of transactions, banks that provide liquidity may execute the "last look" condition, giving them the right to hold the order in processing until the market condition gets clarified. In practise, this means that traders may need to wait for up to 3 seconds before their orders are executed in volatile market conditions. While this won’t happen every time, it is important for traders to take such a possibility into account when planning their trades.
Forced closing of positions due to spread widening
Despite the fact that the trader may have a hedged position, i.e. the short position matches the long position, stop-out (forced closing of positions due to lack of funds) can still occur. Typically this happens when there is a significant spread widening, especially during the publication of economic news. While traders usually enjoy low spreads, they should be aware of unpredictable spread widening during turbulent market conditions.
Trading credits provide additional leverage for traders to increase their positions and potential profits. However, as the position size grows with additional funds, potential financial losses also increase in case of an unfavorable price change. Forced closing of positions with active trading credits may occur if the margin level reaches 30% or if the account funds fall below the amount of active credits. Traders must fully understand the risks associated with using trading credits.