Order execution in STP accounts is designed in a way that provides super-fast execution as well as excludes any dealer intervention in the process. However, these significant advantages might possibly cause adverse high slippage in rapid-moving volatile markets.
Slippage is when an order is filled at a price that is different than the requested price. Slippage often occurs during periods of higher volatility, when market orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.
A Client placed 0.26 lots SELL STOP order AUD/USD at 1.01912 (marked in red), at 4.30 AM server time.
On the MT4 chart at 4.30 AM we see a large candle (fig. 1).
A Client placed a SELL STOP order at 1.01912. The above figure shows, that the order is placed between the High and the Low price levels of the candle at 4.30 AM server time. Because of a news release at 4.30 AM the price made a sharp move down with a significant GAP in the Price Flow. The Client's pending order fell into this price Gap. The order was supposed to be executed at the next available price.
To protect Clients from high slippages, we have introduced a mechanism that compares the Client's Order price with the best price at which this order can be actually executed. If the difference exceeds the maximum allowable slippage value, the execution process is terminated and the Order is rejected. The rejected order is seen in the Account History tab with the corresponding comment “cancelled by dealer” (fig. 2).
The comment “cancelled by dealer” is generated automatically by MT4 software without any dealer intervention in the process, due to the fact that ECN/STP is a non-dealing desk.
The maximum allowable slippage value may vary depending on the level of market volatility at the moment, when a Client initiates an Order from his terminal. The maximum allowable slippage value is defined by a company.
The slippage control mechanism applies to Market (Buy and Sell) Orders, as well as Pending Sell and Buy Stop Orders. Stop Loss and the automatic orders liquidation according to the Stop Out procedure are executed at the best available price and the actual price may differ considerably from the order level or the calculation data, according to the Stop Out procedure.