В previous post we talked about the saddest case of a relationship with a broker – he turned out to be insolvent, went bankrupt and did not return our money. What other “slippery” moments arise in the relationship between a broker and a client? One of them is called:
Slippage
For each open position, the trader places a Stop order. Tries to limit losses that arise when the market moves in a direction different from the expected one. And every trader in his trading activity with ANY broker observes that from time to time his STOPs are not executed at the price that he set in his trading terminal.
For example, I opened a long position in EURUSD at a price of 1,1865 and set a stop loss of 1,1815. The market, bitch😊, did not go in the right direction, which happens in at least 30% of the most thoughtful and verified transactions, and the broker executed a stop. But not at the set price, but closed your position at 1,1813,5. That is, in addition to the loss you already have, you added one and a half points (this is conditional, maybe half a point or two points).
If the position was 100k, then an additional loss of one and a half points would be $15. Is it a lot or a little? If for real life, then it’s not such a small amount of money. Sit in a cafe with a “pie” (even in Moscow), or drink a couple of whiskeys in a bar. And in activities on the market, if you add another 500 to the loss of 15 dollars? Bullshit question, right? But it’s still somehow dishonest and incomprehensible, right?
We have two psychological factors.
-You bought a smart TV, paid in cash, and already at home you discovered that the cashier had not given you $15 in change. What’s your reaction? The joy of a new TV will “overshadow” the annoyance of dishonesty. Should I go back to the store and somehow prove that I was deceived? Wave your hand.
-You discover that somewhere you have lost a wallet containing 500 dollars. Reaction? Regardless of your monthly income (either $2k or $50k), it’s unpleasant. And in the evening, after counting the money in your new wallet, you notice that another 15 dollars have disappeared somewhere. “Well, such a day.” A small trouble will simply fit into a big one.
The same thing happens when your stop increases by 0,5 -2 points. The smaller your position, the greater the slippage may be.
If your position “pops” at 5,0 mio dollars, how much does the broker earn on one slippage point in EURUSD? That’s right, $500. It is beneficial for the broker that you trade larger amounts; this increases their commissions. Therefore, on small amounts they can “gain” a couple of points to increase their profitability; from time to time, not on every transaction, of course, they turn on the slippage button. They treat “big money” with caution, they don’t want disturbances from valuable clients, so half a pip, tenths of a pip.
In our practice, about fifteen years ago there was one foreign investment bank, in which we traded 20-40 million in open position (hedge fund under our management). And they are addicted to “sweetly” writing off 1-2 points regularly!! For each of our stops. At such amounts. In a calm market, at a calm time. We talked to them, contacted the higher headquarters, but they continued. Apparently, they fulfilled the planned indicators for bonuses)). Of course, we transferred our trading accounts to another bank. And they lost a valuable client. And we certainly didn’t receive any bonuses)) But, I repeat, slippage on relatively small amounts is a completely tolerable event. This will happen in any country, in any bank or brokerage house.
However, failures to fill orders “just right” with stops can indeed be the result of sharp market movements. The broker really cannot “grab” the quote when suppose the USDJPY rate falls by 80-100 points, and your stop, located not at the end of this movement, but halfway, is swept away by this movement, with a loss against the indicated ones of both 3 and 5 points. This is the market. This is life.
“You wake up in the morning, and proud is still sleeping, the prison is not sleeping, it woke up a long time ago, and your heart hurts in your chest, as if a fire had touched your heart.” Arkady Severny’s song suits the trader’s state “as if a fire had touched his heart” very well when in the morning he sees a “Gap Gap” on the chart of the instrument where he holds an open position. The overnight gap is wonderful in the direction of the trader’s goals, and absolutely vile in the opposite direction. We open the terminal and see that the stop, of course, worked, but added 5-30 points to the losses expected by this stop.
As we said, there are two options for the picture: either the gap really “carried away” our points naturally, or the gap naturally took, say, 10 points, and the broker took another five? What to do and how to find out? You can call the broker, find out what and how, he will be indignant. Yes, such calls are effective if you are indignant every time you think that you are being treated unfairly. Drop by drop, claim by claim, if justified. Of course, the broker will tell you everything in such a way that “you won’t be able to undermine him”, he will justify all his evidence. Is it possible to prove that you are right? If the account is with a broker “from the islands”, you will not prove anything. You can make attempts with European licensed ones, but the process will be long, and it’s not a fact that it will be in your favor.
Both the inability to close your trade at your price and “slippage” have existed for a very long time, since the Ancient World. An Egyptian merchant orders a product from an intermediary broker, a shipment of ivory from Africa. They shake hands, the agreement is on papyrus. A few months later, the broker calls the merchant on his mobile phone (just kidding) and says: “the goods have arrived, take them.” “But the small problem is that ivory will cost you not two gold coins per kilogram, but 2,10 per kg. You see, three ships were sailing with ivory from Africa, a storm began, one ship sank, so we distribute the losses evenly among everyone, and take part of it upon ourselves.”
“Why the fuck should I pay for your losses? – says the merchant. – How can you prove that one ship sank?
Believe it or not, the intermediary broker answers. Here’s your advance payment back, they’ll take this 3-coin bone from me right now.
The merchant is aware. Today he already has a buyer from a neighboring city who will take this bone for three coins. Whether the ship sank or did not sink, who will prove it, if the owner of the ships, who is also the seller of the cargo, ordered his captains to confirm this version in court. Or maybe the ship really sank. This is how it has always been, is and will be on the stock exchange.
Alas, this is a market, this is an exchange, with all its advantages, dangers and problems. If you are in this area, then you accept all the written and unwritten rules. Therefore, treat the phenomenon when you lose pips or fractions of pips in addition to the existing losses from a triggered stop lightly. With the motto “We’re fucked but we’re getting stronger”😊