Very well said rishi....This guy has been getting on the nerves for a while...
B-T-W I've heard users of oanda complaining about wider spreads and slippage during news releases.Am yet to open an a/c in OAnda.Like to hear your feedback on this...
Spreads and slippages are a feature of REAL market scenario. We should understand why the spreads increase during news. You see, most of the times, the expected news is factored into the price already. The problem comes, when it is not.
The prices that we see on any broker are actually fed by liquidity provided by big hedge funds, banks and other institutions. They are the real market makers and movers. During the event of an unexpected news, no one really knows what could be a good BID/OFFER to quote. As a result, the top guys out there get conservative and do not quote as close as otherwise. In other words, they pull back their BIDS and OFFERS. The spreads that we see are BEST BIDS and OFFERS(ideally). As a result, the best BID OFFERS widen and thus the spread.
Same thing happens with slippage. One should understand how the stop orders are executed in real market to understand the slippage.
When the price reaches your STOP price, the STOP order becomes a market order and is immediately fired for trade. Whatever next counterparty this order finds, it deals with it. In case of high liquidity, the other guy will be found pretty close to your stop price(or at the same price) and you experience no slippage. During illiquid times, this is not the case and slippage occurs.
I am sorry if you were already aware of all this.This might come to you as unneccesary rant then.
If not you, this post might answer questions of some one else.
I have traded my personal account with Oanda and have been very pleased with them.
Disclaimer: I am not an IB with them. They dont have any IBs. I do not get any benefit if you get your account with them .