How does the spread affect my orders?

[slugFX]

I know I should probably know this after trading for about a year and a half, but can someone explain to me how the spread affects my orders when it comes to buying AND selling (preferably with pictures).

For example, I tried to buy AUD/USD at .8988 and I did not get entered into the trade:

Is price always floating the spread above what I am seeing on my charts? So, in this trade for example, I would only get entered if price went below my entry order by the spread and the take profit would get hit if price got to my take profit minus the spread?

 

[foreigner]

I view the spread as broker manipulation, they increase it to tag stops and trap traders.

For them its the "charge for doing business" for us its a grey area of a few pips that should be taken in to account when entering placing stops and exiting a trade.

You were pretty unlucky not to get filled at the 62 given price stabbed the level several times over several hours..

 

[slugFX]

I guess my main question is how I should adjust my orders to accommodate for the spread and how it's different when buying compared to selling.

 

[rod178]

I guess my main question is how I should adjust my orders to accommodate for the spread and how it's different when buying compared to selling.

prices are plotted on BID
Buy at the ASK
Sell at the BID

so when Sell it is at the chart price
when Buy it is Chart price plus spread

 

[jack]

prices are plotted on BID
Buy at the ASK
Sell at the BID

so when Sell it is at the chart price
when Buy it is Chart price plus spread

This.

Traditionally charts are printed from the tape (time and sales,) but since there's no tape to read in the decentralized FX market charting platforms have to rely on another price to paint candles. In MT4's case, it's the Bid price only.

That means, should the spread be wide enough, the chart can visually appear to be distorted.

It also means when you're short, getting stopped out can appear to happen even though the chart never really touches your stop level (a common complaint by new FX traders,) given it's the ASK price that you buy your short back from and this price isn't being charted.

 

[jack]

I'd rather my FX platform chart the midpoint between bid and ask for painting candles, combined with horizontal lines for the bid and ask prices.. which I can do in fxTrade, but I can't do in MT4.

For all other non-FX markets with transactions reported by the exchange, I want the chart to be painted based off time and sales. Anything else seems silly. It might make some charts look like swiss cheese due to low volume, but visually speaking that's actually a good indicator of just how liquid/active the security is.

 

[SLT]

I guess my main question is how I should adjust my orders to accommodate for the spread and how it's different when buying compared to selling.

Personally speaking, i don't use orders at all. I think if you miss the opportunity, then it is time to move onto the next hunt. If i am not at my desk to make the entry at the critical level, then i was not doing my job following my trade plan, for that particular entry point, which mind you can be down to the pip.

 

[slugFX]

prices are plotted on BID
Buy at the ASK
Sell at the BID

so when Sell it is at the chart price
when Buy it is Chart price plus spread

Thank you! This is simple, to the point, and very easy to understand. Exactly what I was looking for!

 

[slugFX]

Personally speaking, i don't use orders at all. I think if you miss the opportunity, then it is time to move onto the next hunt. If i am not at my desk to make the entry at the critical level, then i was not doing my job following my trade plan, for that particular entry point, which mind you can be down to the pip.

I use orders because of the fact that my trades are all planned out. I also use them because sometimes I am not able to wake up for London Open, but don't want to miss a trade.

 

[jack]

Personally speaking, i don't use orders at all. I think if you miss the opportunity, then it is time to move onto the next hunt. If i am not at my desk to make the entry at the critical level, then i was not doing my job following my trade plan, for that particular entry point, which mind you can be down to the pip.

So being at your desk to actively watch the entry point is part of your plan?

Curious: What changes are you looking for? For price to be already doing what you expect at your level?

Does this save you from catching a trade when price punches hard through your desired entry level?

Just wondering how it fits into your strategy..

 

[rod178]

Using only Market Orders (ie watching the screen) may make one susceptible to market noise.

Time limited Pending orders, at predetermined price points, help eliminate this issue.

 

[jack]

I use both. There are times when a limit is better, and times when punching in manually is better.

I think it depends on the system more than anything.

Like, if you have levels mapped out over longer periods of time, and there's no news expected while you're not at your desk, then a pending order with stop pre-set isn't a bad thing if it fits your strategy.

 

[rod178]

Yes, an entry on a price reaction in a predetermined "price zone" is certainly a viable strategy, although I look at that more as an entry confirmation signal.

 

[Tansen]

Entry is more of a style thing.

I used to just leave orders up for 1 price at the start of London then I would sleep if I can't stay up to watch it then let it go.

With that said I've seen ICT get on late for a webinar and suddenly market a 10 lot order lol, i've done it to a similar magnitude if I've seen an early setup or if the daylight savings time changes eluded me that day.

 

[TheRumpledOne]

Perhaps if you asked a different question...

SHOULD I CONSIDER SPREAD WHEN SELECTING A PAIR TO TRADE?

I was alerted to a trade opportunity on AUDJPY. I have never traded this pair. Looking at the spread vs. number of bars greater than spread and number of bars at least twice the size of the spread, I decided to pass on the trade.