Forex spreads widen, poor liquidity
Forex spreads this year is the worst I can recall. I did several screen captures on my iPad between 11.28pm – 11.32pm last night (26 December; my timezone is GMT+8). There are 3 pairs of snapshots here – look at the time at the top centre of each picture. The pair caught at 11.28pm shows quotes from forex broker #1. The pair caught at 11.30pm shows quotes from forex broker #2. The pair caught at 11.32pm shows quotes from forex broker #3.
Forex quotes from broker #1 captured at 11.28pm 26 Dec 2016 (GMT+8)
Forex quotes (page 2) from broker #1 captured at 11.28pm 26 Dec 2016 (GMT+8)
Forex quotes from broker #2 captured at 11.30pm 26 Dec 2016 (GMT+8)
Forex quotes (page 2) from broker #2 captured at 11.30pm 26 Dec 2016 (GMT+8)
Forex quotes from broker #3 captured at 11.32pm 26 December 2016 (GMT+8)
Forex quotes (page 2) from broker #3 captured at 11.32pm 26 December 2016 (GMT+8)
All 3 are international brokers. Broker #1 is my own favoured ECN forex broker. During regular market conditions, it outperforms the other 2 (which are market makers) in terms of tight spreads, good order fills and minimum slippage.
- Forex broker #1 – ECN broker
- Forex broker #2 – market maker
- Forex broker #3 – market maker
|Forex pair||Forex broker #1||Forex broker #2||Forex broker #3
Note the information in this table is the spread between bid and ask quoted by forex brokers #1, #2 and #3. Arrows in each cell at top row can be used to sort each column.
It didn’t cross my mind to check whether I have captured at least all the quotes of major forex pairs for comparison (it was just before bedtime after all). As a result, we are not able to make a comparison for USDJPY and GBPUSD; I would have preferred to be able to make a comparison for all JPY crosses as well. ↓ we can see quotes of forex pairs available from all three brokers.
Forex spreads in pips available from 3 brokers day after Xmas
A. My favoured ECN broker #1 is hopelessly outclassed but it is doing exactly what it ought to do. This is a good primer on the differences, comparison between market maker, STP and ECN brokers – I recommend readers to take a look.
B. Spreads are horrid. For almost all pairs scalping would be impossible. However if one insists on scalping day after Christmas, get a trading account from a market maker and make sure that your target profit per trade has to clear the minimum hurdle set by the trading spread of 10 or 20 pips. For a 2:1 reward risk ratio, the desired target profit of a currency pair that is quoting a spread of 20 add a buffer of another 20 must be equal to 80 pips. Outcome is theoretical because many factors are involved in actual performance.
C. Forex broker #2 was quoting 10, 20 pip spreads for quite a number of pairs. #2 is a market maker so those 10s and 20s were made up? LOL.
D. GBPSGD must have the worst spread ever. Quote from broker #3 not available.
E. This poor liquidity, widening of spreads is another sign that 2016 is a real shitty year. I hope this trend will not continue into 2017.
Reminder again why there are times you should take a break from trading
I am against trading especially scalping in the last 2 weeks of the year. There are a number of reasons why one shouldn’t be trading around Christmas and before the new year. For myself, the most important reason is taking care of my own lifestyle/health/psychology.
I think that forex trading can be a lifelong activity and therefore should be sustainably paced. It means a balanced approach that also gives one enough rest not just physically but psychologically as well as time for family and friends. There should be a kind of arms-length approach – not an all in totally immersion.
There is also a very practical consideration: there is no reason to be banging one’s trading account when the market is not moving. The worst trading profile I can think of is scalping. Not only does scalping depend very much on ample price movement but trading spreads also have to be tight for scalping to be worthwhile. Scalping in my opinion is bad – scalping on a non-moving day with horribly wide spreads before or after Christmas is worse.
Traders need to weigh getting it right once or taking 3 steps forward 2 steps back
Let me put it another way: you could win a lot of money or you could lose a lot; if you manage to come back to your starting point (break even) after a tremendous 8 – 10 hours effort of scalping you could be thankful but wouldn’t you be better off if you spent that time in some other Christmassy way?
This is a screen capture of broker #1 moments ago at 11.53am today – EURGBP spread 2.1 pips. GBPSGD spread 8.0 pips.
Forex broker #1 screen capture at 11.53am 27 Dec ’16
Forex broker #2 quoted a spread of 2.4 pips for for EURGBP and 9.0 pips for GBPSGD. Appears that market is back to normal.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."