Don’t you have any experience that the trade was established with a price different from the price specified in Forex?
Established at a rate lower or higher than the limit, profit becomes less than expected and it is not unusual for loss to expand. If slippage occurs for some reason, the contract rate will deviate from the limit price. Profit will be different from assumption. There are various reasons for this phenomenon to occur, but the contract rate of the dealer is particularly relevant.
What is the contract rate?
The contract rate is a term that refers to the rate at which an order is established at a limit price. For example, if you contract with a limit of 9 times during 10 orders, the contract rate is 90%. As the contract rate is higher, it will be decided at a limit price, which is an important indicator in controlling profit and loss.
It is not uncommon for contract rate to greatly affect profit and loss. The smaller the amount of trading currency and the number of trade, a slight difference in the contract rate has a big influence. There are not many people who place importance on spreads when choosing a Forex broker. In order to reduce the risk of slippage, it would be better to choose a broker with a high contract rate.
There are many merits of high contract rate
It is said that the higher the contract rate, the better. But what is the merit of having a high contract rate? Broadly speaking, there are advantages that it is easy for orders to be established in a limit price, and benefits can be controlled.
Trading is established at the intended price
In Forex, how to control losses is an important factor. If the order is contracted at a rate different from the limit price, the loss will expand, and there is a possibility that this may invite risks such as a decrease in margin maintenance rate and compulsory loss cut.
Suppose that you purchase 100,000 dollars for a buying price of 115 yen per dollar, and sell it at a limit price of 110 yen per dollar. If you make a promise with the limit, the loss will be 500,000 yen. However, if slippage occurs and established at 109.99 yen, the loss would further increase by 1,000. Although it is only 1,000 yen, as the number of transactions increases, the total loss may increase.
On the contrary, what if the order is concluded with a limit price? The loss can be suppressed as expected, and conversely if you have unexplained profits, you can get the profits as you expect. If the contract rate of a Forex company is high, you will be able to trade at the desired rate.
Easy to control profit and loss
If the contract rate is high, you can make a contract at the rate that you wish, so it is also an advantage to make it easier to control profit and loss. Especially when the trading currency amount increases, the difference of only 1 sen becomes several hundreds of yen to several tens of thousands yen, a precise profit and loss control is required.
If trading with a Forex dealer where lowness of contract rates is conspicuous, there is a possibility of missing profits of tens of thousands of yen or conversely increasing losses of tens of thousands of yen. The Forex dealer with a low contract rate suffers the risk of slippage.
On the other hand, if you use a Forex dealer with a high contract rate, you can reduce the risk of slippage. Most orders will be contracted at the limit, so you will not miss the profit. Since loss is minimal there is no need to worry about the fall of the margin maintenance rate or forced loss cuts.
When the contract rate is low, the disadvantage increases
Although the contract rate has a large impact on profit and loss, the risk becomes very large if the contract rate is low. There may be various risks such as unexpected costs occurring and not being able to withstand rate fluctuations. Since it is a factor that pressures the profits and increases the loss, even if there are Forex companies with narrow spreads, it would be better to avoid them if the contract rate is low.
Cost that rises above spread occurs
Spread is a fee in Forex trading, but dealers with low contractual rates often have big spreads as slippage occurs frequently. For example, even a dealer with 1.03 dollar, if a 1 sen slippage occurs, the real spread will be 1.3 sen. Even if there are dealers with low spread, do not take it if the contract rate is low. On the other hand, even if the spread is 1 sen, even if it is wider than other companies, if the contract rate is high, there is a possibility that the real spread can be done with 1 sen. A low contract rate affects costs, which can lead to loss of profits or to increase profits and losses.
Cannot tolerate sudden rate variation
It is not uncommon for rates to fluctuate rapidly in a few seconds, such as when announcing economic indicators or when a serious event affecting the exchange rate occurs. In the case of Forex companies with high agreement power, slippage can be kept to a minimum even with sudden rate fluctuations. On the contrary, if it is a Forex trader with low contract power, it cannot establish along the way and there is a risk that slippage will spread beyond assumption.
Moreover, there is a possibility that the limit may slip more than expected, and the contract may be rejected at the worst. It is a common story that slippage occurs when the market fluctuates rapidly. However, since the order itself is not established when the contract is refused, there is a risk that the loss will rise. In a dealer with low contract, refusal of contract frequently occurs at market price fluctuations, so it is necessary to take measures such as settling positions frequently from time to time.
The Forex company high contract rate is important
A Forex dealer with a low contract rate has a server with very low processing ability. It doesn’t have any advantages for traders rather only disadvantages. The lower the contract rate is, the slippage occurs or the contract is refused, the loss increases and only the opportunity to gain a profit is lost. Choose a Forex dealer with high contract rate.