If you have been trading in the forex market for quite some time now, you might have noticed that your orders are often not executed at the exact same price you specified.
You might wonder if you are being cheated by your broker, or it might be a result of a bug in your MT4 platform.
Fortunately, those are not the reasons for this occurrence. These are quite normal in the financial markets, especially in the forex market, where the price can actually move faster than the speed of order filling. This fact is what usually causes the discrepancy between the price you specified and the price your order is filled.
Brokers usually uses two different methods in executing your forex order, namely the Market Execution and Instant Execution.
If your broker uses market execution, your order will be filled at the next available market price. The price in which your order will be filled might appear different or worse than the price displayed in your trading platform, mainly because the process between the time you click on your computer to the moment it is executed on the server side would take some time, and by the time that your order is executed, the market prices might have already moved.
The difference between the price you specified and the price your order is filled is called slippage. For example, your trading platform is displaying a price of 1.1100 for the EUR/USD pair. You clicked the “Buy” button as soon as you saw that price on the screen. However, because of the fast movement of the market, the price moved to 1.1110 before your order was filled. That means once your order is executed, it will be filled with a price of 1.1110 instead of 1.1100, since that is the current available price. You will not be able to place stop loss and take profit orders during this time, and only until you’ve established a position in the market will you be able to do so. If you’re using the MT4 platform, you’ll notice that the boxes intended to set stop loss and take profit orders are greyed out. Market execution is offered by most types of forex brokers, most especially the STP / ECN type of broker.
Meanwhile, if your broker uses instant execution, your order will be filled at the price you specified if it is available at the time your order is to be executed. Unlike market execution, which will execute your order at the current available price no matter how large the slippage is, instant execution will not execute your order if the price is undesirable. With instant execution, you will be asked to set a maximum deviation, which means you have the control over the amount of slippage that you think is acceptable, and your order will only be filled within this range. And since these orders are only filled at a predetermined price, you are able to set stop-loss and take profit points. This kind of execution is usually used by dealing desk brokers.
Each of the execution method has their own advantages and disadvantages, and the type of execution that is more profitable will largely depend on your trading strategy and style.
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