Order Execution Quality
16 November 2017
Why we disclose Order Execution Quality
We strive to provide transparent brokerage service – with special focus on order execution quality. This is why we’ve recently added an Order Execution Quality section to the offering. Customers may now cross-check, for every fill:
- Requested vs. Fill Price
- Round-trip latency
Order Execution Quality: The order execution report is back
WYSIWYG – How to assess execution quality?
wysiwyg (pronounced: “wiz-ee-wig”) is tech jargon, short-hand for what you see is what you get. Wiz-ee-wig coding interfaces empower developers by visually updating their end-product as they code.
In an OTC, last-look marketplace like FX the spreads you see aren’t always the fills you get. Every broker these days publishes spreads, but spreads don’t always fill as advertised… all of which makes fill transparency all the more relevant. If you want to learn about the mechanics of OTC liquidity aggregation, check out our recent webinar on this very subject, as unfortunately it is a topic that is not universally understood.
One of our PB relationships, the LMAX Exchange, recently published an interesting (and brainy!) white-paper on how to assess execution quality. Their insight is that spread is but one of 5 elements to assess:
- Fill ratio: what good is a tight spread if you don’t get filled?
- Price variation: what if you’re slipped asymmetrically?
- Hold time: on technically possible vs. actual latency…
- Market impact: how deep is the market? You might also want to watch our recent divergence webinar!
- Bid-offer spread: all the above prove that this is not the be all and end all!
Collective execution quality
In addition to the individual reports submitted per user, we’ll do our best to regularly publish aggregate data for the community. In that spirit, here’s some stuff to whet your appetite!
So, what do the numbers look like for the overall community?
Execution Quality – Slippage distribution – all trader community, all trades
Some insights:
- 87% of trades fill within 0.1 pip of the advertised Top of Book
- The distribution isn’t fully symmetric. So our LPs are crooks? Don’t shoot them just yet!
- We measure slippage vs. advertised 10 lot Top of Book – because 90%+ of trade requests are within top of book depth. It’s therefore “normal” / “fair” that orders of 10+ lots incur slippage
- Most strategies trade the trend – e.g. systematically buying a rising market yields asymmetric, but “fair” fills – watch the “Price Variation” LMAX video above – which again stresses the importance of “Hold time”
How does volume impact fills?
Distribution of slippage vs. lot size
The above charts plots the distribution of slippage for all orders sized 10+ lots – because 10 lots is the typical depth of the Top of Book spread we stream into MT4:
- The blue columns on the Y Axis plot the frequency of any given slippage outcome
- The X Axis labels slippage, measured as fill price – request price (negative means customer got worse than Top of Book stream)
- The Red series shows the average size (in lots) of trades in each slippage bucket
E.g. for all trades exceeding the advertised Top of Book depth
- 45% odd of all trades larger than 10 lots filled at the advertised bid or offer
- 5% odd slipped positively
- 2 out of 3 filled within 0.1 pip of target
- 7-8% odd were slipped worse than -0.3 pips from request, etc.
The way forward for global FX
We have written on and pleaded the need to align interests in retail FX... alas it’s taking a while.
How long FX takes to trade on exchange is anyone’s guess, BUT things are moving forward:
- Mifid2 reinforces best-execution and all venues now report fills to centralised order repositories – watch this space for better rights for customers
- ESMA might take the opportunity to slay the CFD dragon for good from January 2018
- Many firms voluntarily adhered to the FX Code of Conduct
- Powerful forces in the buy-side now lobby for the end of last-look
Please hang in there until things become fairer – in the meantime, we’ll wiz-ee-wig FX trading for you!
