EducationI rarely use stops in the ForEx market, but yesterday I decided to use one for this trade, and the result is something right out of the currency trading no-no's in Education of a Speculator.

Broker: The SL got executed correctly at the quote you specified at 1.55185
ME: It was the bottom tick
ME: market spiked right toward my stop and then continued away
Broker: The quote got reached as you can see on your chart
ME: sometimes you see these huge short spikes on the chart, are those always correct?
Broker: There was no spike, the spread was wider due the NFP news release
ME: how can one see the spread at any given time?
Broker: You use for example the Min/Max Graph which will give you the valid quotes for order execution
Broker: Please have in mind that Candles are only used as price indicators to predict future price movements.
Broker: Candles give you only the average price per time period and cannot be used to see order executions
ME: what was the bid/ask at the time the stop got executed?
Broker: The quote was 1.55144/861
ME: how many pips wide is that spread?
Broker: the spread was 10 pips at this time
ME: thats a horrible spread especially for eur/usd
ME: thats more then 10x the .9 spread advertised
Broker: During news releases this a common spread
ME: y?
Broker: Please have in mind the spread are variable and spreads will widen during news releases
ME: if the spread was .9 at that time, would the stop still have been triggered?
Broker: No.

Chris Cooper clarifies:

There is a big difference between stops based on executed trades (ticks) and stops based on quotes (bid or ask). The forex market typically provides only quotes. If the liquidity providers at your trading venue all decide to back off for awhile, the inside bid/ask may move dramatically, because the liquidity has temporarily evaporated. This normally happens around major news releases, and around 5:00 p.m. Eastern time when trading quiets down. Using stops based on bid/ask at these times is suicidal. Don't blame the broker — it's your own fault for not knowing better.

Tom Marks remembers:

Tom MarksYears ago in my bumbling youth of a silver trader on the floor, I adventurously ventured from picking the low-lying fruit to be found in the pit and started to get an additional nocturnal fix trading with the dealers overnight.

And what a cagey lot they proved to be.

Given the itch, I would call up and they would make a five-cent market. Somewhat wider than the ordinary half-penny spread to be found during most of the daytime hours. That should have been the first clue, but, hey, I was young and impetuous.

So the would-be boy genius would make his gentleman's wager of five lots and implore his new best best on the other end of the line to kindly stop him out should the market make an adverse turn of 20 cents, a $5000 loss.

I did this about four times, paid my $20k in tuition at that stately School of Silliness before the lightbulb, however dim it might have been, finally lit up above my head.

Used to the (somewhat) organized chaos peculiar to the pit, I finally asked the guy about the times and sales. He explained that such niceties didn't exist in the midnight hour. It seems in that parallel universe prints held no sway and quotes were the order of the day.

I asked, OK, how many of you guys are playing in this card game? About three of us, he explained.

I smiled at that, however wanly, and waxed Nietzschean: Alright, they fleeced me, but didn't kill me, therefore I'm stronger.

That is, of course, until the next lesson rears its head. There are few things as continuing in life as continuing education.


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