Are requotes the Retail FX “Last Look”?
Recently, financial markets media has been full of articles about the use of “Last Look” technology by Banks and Liquidity Providers, the main focal point being whether their ability to check a trade price before accepting the trade is fair or whether it provides them with an unfair advantage. In theory, “Last Look” was initially introduced in order to level the playing field between the LP’s and their quicker counterparts who regularly took advantage of slight discrepancies in their pricing. Though, as is often the case with technology such as “Last Look”, something which was initially introduced to be fair, can often lead to abuse by those in pursuit of a quick gain a.k.a everyone in the Financial Markets.
The use of “Last Look” technology and whether or not is fair got me thinking about our own “Last Look” in Retail FX, requotes are a fundamental part of the Mt4 platform and similar to “Last Look”, they are there to provide a fair solution for off-market trades, however as with “Last Look”, this solution is open to abuse by those looking to make a quick gain at the expense of their trade counterpart. Many will argue that re-quotes in general are unfair as clients are trading the prices provided by the Broker, but this is a somewhat naive view that I am going to address with this article.
Upon the introduction of Mt4 we did not have the superior connectivity that we all enjoy when trading today, latency was a big issue, especially if your Brokers server was in Europe and you were a trader in China, this latency often resulted in a traders requested price being very different from the valid market price by the time this request reached the Brokers server, this would usually result in a requote for the trader with the more up to date price. In theory requotes are there to protect the Broker and the Trader by ensuring that neither party is filled at a price which is very much disadvantageous, whether or not they are applied this way is dependent on the Broker as it is the Broker who is in control of how their requotes are used in practice. It is widely known that many early stage brokers set their requote settings in their own favour, with all trades in the Brokers favour being accepted while those in the clients favour were often re-quoted, especially if the client was exiting with a profit.
As we have often seen within the Retail FX market, traders got smarter and they have continued to do so, a trader will know if you are only being re-quoted when exiting profitable trades or if they are only being re-quoted when entering in the right trade direction. Today there is a near unlimited choice for traders, if they are not being treated fairly then they will up sticks and move to a new Broker. The threat of this alone, should be enough for a Broker to focus on long term profits, 90% of traders are losers, so why focus on saving a few points with a requote? This combined with the education of traders and the improvement, in some instances, of Regulator knowledge and oversight, has resulted in Brokers being held accountable for their requote settings and their requote percentages. This should have led to requote settings which are similar to the expected slippage given to traders, in that they are symmetrical when favoring the Broker or Trader.
So are re-quotes fair? And with the advancements in connectivity do we still need them? Unfortunately, there is no simple answer to the question of whether or not they are fair, they should be, but whether or not re-quotes are fair is down to those giving the requotes, if the Broker is fair and transparent then the requotes should be there to protect you as much as they are to protect the Broker by ensuring fills are in line with the current market. As for whether or not we still need them after all the technological advancements we have seen in recent years, the answer to this question is yes, though connectivity has improved, Mt4 has not really kept pace and this leaves Brokers exposed to abusive Expert Advisors such as those operating through latency arbitrage. I know the Brokers are often seen as the bad guy, but at the end of the day, Mt4 cannot achieve the same quote speed as a FIX API connection so there will always be the opportunity for EA’s to take advantage, would you feel comfortable seeing a Bookmaker lose every time because the punter knew the winning horse before they had even run the race?
In the end, re-quotes are our own Last Look, they are needed to protect the Broker (yes, they do need protection) but they are also there to protect the Trader and this should be a focal point of your Broker. If you see too many re-quotes or unfair behavior then request the prices at that time to see if it was a fair requote, if you don’t want the hassle then move Broker or move to an ECN account, requotes are out-dated but we live with them in Mt4 and unlike Last Look, there is no danger of them being banned anytime soon.
#tradesafely #fxzoo #insideman