HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

Exploring the Depths of Price Levels and Market Impact in the Brokerage Industry


Feng Zhou   Written by Feng Zhou

 

In this comprehensive analysis, we delve deeper into the intricacies of pricing within the brokerage industry, extending the foundational knowledge established in the first three articles of this series. This exploration focuses on the nuances of spreads, price levels, and their variability across different brokers, offering a more thorough understanding of these dynamics.

Understanding Price Levels in the Over-the-Counter Market

The Over-the-Counter (OTC) market, characterized by its simultaneous transactions and varying prices for identical assets, often results in price discrepancies between different market maker feeds, even for the most liquid assets. The advent of electronic trading and algorithms designed to exploit arbitrage opportunities across diverse liquidity pools has minimized these discrepancies. However, they still occur, particularly during periods of reduced liquidity.

For instance, consider a scenario where low trading volumes are present for a specific instrument. A substantial market order in such a situation can significantly influence the asset's price. This price movement in one liquidity pool (say, Pool A) triggers a ripple effect due to arbitrage, causing other pools to adjust similarly. Conversely, an erroneous price in Pool B, perhaps due to a technical glitch or human error, might create a substantial shift, but this is less likely to be mirrored by other pools unless they redistribute this erroneous price.

Reasons for Differing Price Levels

Price level variations across different venues typically arise from:

Handling Misquotes

When misquotes occur, brokers using the affected price provider might display different prices than those who don't. Brokers often investigate these discrepancies, and if a misquote is confirmed, industry practice usually involves canceling trades that benefited from the incorrect price and compensating those adversely affected. At Exness, for instance, while we avoid removing client profits due to misquotes, we do ensure compensation for clients negatively impacted and strive to minimize future occurrences.

Price Inconsistencies Due to Tick Filtering

Differences in prices can also stem from tick filtering strategies employed by brokers, especially post-market news, to manage system load and execution speeds. These practices, while managing risk, may not fully reflect real market movements, leading to partial visibility of price changes in the primary market.

The Dynamics of Spreads and Slippage

In the OTC market, the coexistence of different prices for the same asset highlights the absence of a singular, accurate reference price. A realistic assessment of the market involves considering prices at which significant volumes can be traded. For example, a broker might showcase narrow spreads, but actual trade execution at large volumes may involve substantial slippage due to limited availability at the advertised spread.

Consider broker B, offering a minuscule spread for small lot sizes on EURUSD. However, as the trade size increases, the spread widens significantly. This illustrates how larger orders can lead to slippage and execution at broader spreads, evidencing the 'market impact' where the liquidity at the desired price level is insufficient.

Exness: A Model of No Market Impact

At Exness, we maintain a policy of filling all client trades at the observed spread, keeping our spreads stable throughout the day. This approach demonstrates our commitment to transparency and client success, contrasting with practices where low volumes at tight spreads attract clients but don't necessarily benefit them in larger trades.

The Importance of Broker Selection

For traders, choosing a broker with a robust balance sheet and consistent, reliable spreads regardless of position size is crucial. Given the inherent variability in the OTC market, differences in pricing algorithms, latency, risk management techniques, and occasional technical errors, some level of pricing variation among brokers is inevitable. While exact price matching across different brokers at all times is improbable, understanding these dynamics is vital for informed trading decisions.

As we continue to demystify brokerage pricing, our next article will delve into how we at Exness craft our pricing strategies, offering transparency and insight into our approach. Stay tuned for an in-depth breakdown in the upcoming installment.


RELATED

Three Ways to invest Your Red Packet Money in Times of a Worrying Economy

With Lunar New Year around the corner, preparations have been in full swing to welcome the Year of the Rabbit on 22 January. Friends and families will gather for feasting...

Account takeover is on the rise: how to protect yourself

Everyone has a friend who has been subject to account takeover attack. With 24 billion exposed accounts available online, this type of identity theft is now rampant in the digital domain..

Future of banking in cryptocurrency world

What is the future of banking, central banking and financial intermediation in a world in which cryptocurrency is dominant? Let�s speculate a bit...

Mastering Forex Trading with MetaTrader 4

When it comes to trading platforms, MetaTrader 4 stands out as one of the most renowned and widely-used systems worldwide. In this guide, we'll delve into the intricate details of MetaTrader 4...

Precious metals trading made clear: an Octa guide

With its unwavering commitment to clarity, the international broker Octa unravels another facet of trading. Grasp the essentials of precious metals trading in an uncomplicated, transparent manner...

How patience impacts your trading psychology

Trading psychology plays a major role in determining trading success. It refers to the emotions, behaviours, and various other aspects of a trader’s character that may impact their trading decisions...

Market conditions and their impact on forex trading

In this article, we discuss market conditions, how they are influenced, and how they impact forex trading...

Ten Trading Quotes that Will Change Your Trading

Having trouble setting your mindset on trading mode? Need inspiration or a tip to improve your trading? Look no further...

Six Key Behaviors for Traders When Selecting Stocks

In a financial landscape riddled with complexity, especially in forex markets influenced by global economic fluctuations, many traders are turning to the more research-focused domain of stock trading...

Unlocking the Potential of Real World Assets (RWAs) in Crypto

The world of finance is witnessing a transformative revolution with the advent of real world asset tokenization, or RWAs, in the cryptocurrency space. Imagine having the opportunity to own a fraction...

Choosing a broker to trade the financial markets

Choosing a broker to help you navigate the financial markets is an important decision that can significantly impact your trading experience. There are several key factors...

Different Types of CFD Brokers

CFDs are financial derivatives that allow traders to speculate on the price of the underlying assets without having to physically own the asset. CFD brokers enable traders to buy or sell CFDs...

What Are Market Trends?

Have you ever wondered what a market trend is and how to spot it? If so, this article is what you need. A market trend refers to the general direction in which a particular market or asset moves over time...

What is a Decentralized Autonomous Organization (DAO)?

Decentralized autonomous organizations (DAOs) are a relatively new and innovative concept in the world of blockchain and cryptocurrency. DAOs can be thought of as a form of decentralized organization...

Trading Psychology

Trading psychology is a key contributing factor to determining trading outcomes, as it can positively or negatively influence decision making...

Should I Have A Trading Plan?

A trader without a trading strategy is not a trader. Whatever the strategy is, it will help you make sense of the chaos in the markets. In this article, we will tell you what a trading strategy...

Seven Key Components of a smart trading plan

Trading decisions typically depend on several factors. These include market volatility, economic or geopolitical events or announcements, market sentiment, investment goals, etc...

The Role Of Trading Communities And Mentors In Learning And Improving Trading Skills

It’s no secret that trading is quite challenging. It requires a good understanding of how financial markets work, awareness of the events that can affect the movement of a market...

What are the advantages of Metatrader 4?

To manage trades in the most optimal way requires a robust trading platform like MetaTrader 4. Released almost 20 years ago, MT4 has gone on to become the most popular platform in the world...

What is CFD Broker?

Let’s jump into what CFDs are, what a CFD broker is, and how to go about choosing one that bests suit your trading needs. Contracts for Differences (CFDs) are a type of derivative instrument...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.