How to Avoid Requotes
A Forex trader faces many pitfalls during the process of trading the currency market. Sometimes problems appear from the most unexpected places and situations, and they tend to diminish the potential profits.
One of the biggest mistakes in retail trading is that traders think only at the pips profit to make, and not focus on the adjacent costs. One of the costs to consider is the opportunity cost created by market requotes.
Requotes in Forex Trading
When a Forex broker uses requotes in its product offering, it means that the trader’s entry or exit into/out of the market suffer from changes in prices. A currency pair always has two quotes: the bid and the ask price.
If a trader wants to buy or go long a currency pair, the buying takes place from the ask price. If the trader wants to sell or go short, the selling takes place from the bid price.
However, these prices are only an indication, and they could change very fast. Sometimes they change so fast that the trader can’t open the trade because the broker is not able to execute it so fast. In this case, the trader receives a requote, and sometimes more than one for the same operation.
Different Ways to Avoid Requotes
Trading conditions changed in the last years. Since the new ECN (Electronic Communication Network) and STP (Straight-Through-Processing) technologies, brokers switched most of the trading platforms to six-digit quotations.
As a rule of thumb, most problems with the requotes appeared on the four-digit accounts. To clear things up, a four-digit account displays the EURUSD quote like 1.1329, while a five-digit like 1.13298.
The difference is that the second one implies the broker will automatically fill a trader’s order if there’s a market. In the first case, there’s no such obligation.
Therefore, one way to avoid requotes when trading the Forex market is to use an ECN or STP trading account. Forex brokers have multiple types of trading accounts, but with ECN or STP execution you may be sure that no requotes exist whatsoever.
However, slippage may appear (i.e., the broker executes the order at a higher or lower level, due to the market moving too fast), but it doesn’t compare with the harm requotes do to a trading account.
Traders that use a Forex trading system based on pending orders also have better chances to avoid requotes. Pending orders represent orders set in the trading platform to buy or sell from higher or lower levels.
Trading from higher levels than the current market price is done by placing a pending buy-stop order. If the market reaches that level, the broker will execute it automatically, and no requotes take place, no matter the type of the trading account.
A pending buy limit order, on the other hand, is used when traders want to buy from lower levels than the current market price. In the case of selling, a pending sell-stop is placed at lower levels, while a pending sell-limit at higher levels.
Traders use this kind of Forex tactics to make the most of the Forex market moves. This way, they avoid unnecessary costs created by requotes and can focus on the profitability of their trading strategy.