There are many benefits for a trader able to execute fast trades... At least, that is what we are told by such a variety of brokers. Why do Forex Brokers advertise their fast execution speeds so thoroughly? And are there actually benefits to fast trade executions? This article wants to give some insight into what benefits a fast execution broker can give when a trader might need such execution and when fast execution is actually an element to consider when choosing a Forex broker.
The main benefit that fast execution provides is reducing the risk of slippage. The time it takes for the order to be opened by a trader is known as latency. Within this time volatile price movements might happen due to market situations. All things considered, a trade meant to be opened or closed at a specific price level, is probably to be processed at that price since some time has passed between the first ordering of the trade and it finally being processed. Normally latency speeds are within seconds, some brokers offer latency speeds underneath one second (figured in milliseconds), paying little mind to this, the risk of slippage is difficult to completely destroy. Nevertheless, the lower the latency, the less time for slippage to happen and therefore the less risk included. Slippage can be potentially very expensive, good brokers will spend time and effort trying to decrease this risk by investing in the technological foundation.
It's worth noting that fast execution speeds are generally an advantage when trading with a non-dealing desk broker. All things considered, a dealing desk broker makes their own inner market. Even if your trades are traditionally opened rapidly, if the broker wishes to delay or slow down the order, they can do as such. Brokers will do this because they open trades against their customers, which makes a conflict of interest. Besides, requotes can negate the traditional benefits that fast execution provides. Accordingly, most traders will find that trading with a Market Maker does not yield numerous benefit with fast trade executions.
Trading with an STP + ECN broker will normally offer the most advantages to fast trade execution. Since orders are made straightforwardly to Liquidity Providers, the inherent conflict of interest that exists for market makers is removed. It is normally in the broker's best interests to procedure the order as soon as possible for their customers in order to remain competitive among different brokers. A true ECN Forex broker won't requote or trade against their customers. So, the benefits that low latency offers are no longer negated.
Low latency likewise allows for more flexible strategies for brokers. Numerous hedging and scalping EAs regularly depend on fast execution times. These auto-trading robots will benefit an incredible deal from a decent technological infrastructure. Moreover, low latency will allow for more trades to be opened up one after the other. Various trades can be opened for high-frequency trading, a technique usually utilized by hedge funds and professional traders. Even just a 10% decrease in latency can mean 10% more trades being opened or closed in a similar timeframe. This is exceptionally beneficial security wise, particularly if the market movement begins to turn severely. The more orders closed rapidly, the faster you reduce your exposure. This is a similar impact in regards to reducing the risk of slippage.
So what measures can you take, as a trader, to decrease latency? The main thing you have to do is locate a good Forex Broker with fast execution times. It would be reasonable and most likely recommended to find an STP+ECN broker with a dynamic interest in processing your orders rapidly. Other potential steps to take might be to utilize a VPS or a FIX API system, check with your broker whether these would prove valuable, how much it would cost and whether or not the broker offers such FX trading tools at all.