FX Trading Station II Execution Risk Disclosure
The MF Global FX Trading Station II platform provides a sophisticated order entry and tracking system. However, trading online, no matter how convenient or efficient does not necessarily reduce risks associated with currency trading. The execution of all Market, Stop Loss, Limit and Entry orders are on a best-effort basis. All quotes and trades are subject to the terms and conditions of the Client Agreement accessible from this website. Please carefully review the Execution Risks described below:
Slippage
MF Global FX aims to provide clients with the best pricing available and to get all orders filled at the requested rate. However, there are times when, due to an increase in volatility or volume, orders may be subject to slippage. This most commonly occurs during fundamental news events.
The volatility in the market may create conditions where orders are difficult to execute, since the price might be many pips away due to the extreme market movement. Although the trader is looking to execute at a certain price, the market may have moved significantly and the order would be filled at the next best price or the fair market value. Similarly, increased volume may also result in slippage if sufficient liquidity does not exist to execute all trades at the requested rate.
The concept of slippage is not unique to the forex market, as it often occurs in the equities and futures markets. It is important to note that the Market Range feature on the MF Global FX Trading Station allows traders to control the amount of potential slippage they are willing to accept on a Market order. Zero indicates no slippage is permitted. When zero is selected, the trader is telling MF Global FX his order may be executed only at the exact price requested, or not executed at all.
If the trader elects to accept a range of permissible slippage to raise the probability of having his order executed, the order will be filled at the best price available within the specified range. For instance, a client may indicate that he is willing to be filled within 2 pips of his requested order. The system would then fill the client within the acceptable range (in this instance, 2 pips) if the market has moved quickly through the price at which the order was entered. If the order cannot be filled within that permissible range, the order will be rejected.
Once a Stop (Stop Loss) order is triggered, it becomes an At Best Market order, and there is no guarantee it will be filled at any particular given price. Therefore, Stop orders may incur slippage depending on market conditions.
Delays in Execution
A delay in execution may occur for various reasons, such as technical issues with the trader's internet connection to the MF Global FX servers, which may result in hanging orders. The MF Global FX Trading Station on a trader's computer may not be maintaining a constant connection with the MF Global FX servers due to a lack of signal strength from a wireless or dialup connection. A disturbance in the connection path can sometimes interrupt the signal, and disable the MF Global FX Trading Station, causing delays in transmission of data between the trading platform and the MF Global FX server.
Reset Orders
Market volatility creates conditions that make it difficult to execute orders at the given price due to an extremely high volume of orders. By the time orders are able to be executed, the bid/ask price at which a counterparty is willing to take a position may be several pips away.
In cases where the liquidity pool is not large enough to fill a Market Range order, the order will be rejected. For Limit Entry or Limit orders, the order would be rejected and reset until the order can be filled. MF Global FX offers the At Best order type for traders who wish to avoid this situation.
Widened Spreads
MF Global FX strives to provide traders with tight, competitive spreads; however, there may be instances when spreads widen beyond the typical spread. During news events spreads may widen substantially in order to compensate for the tremendous amount of volatility in the market. The widened spreads may only last a few seconds or as long as a few minutes. MF Global FX strongly encourages traders to utilize caution when trading around news events and always be aware of their account equity, margin requirements and market exposure. Widened spreads can adversely affect all positions in an account including hedged positions (discussed below).
Hanging Orders
MF Global FX provides its clients with No Dealing Desk Execution.* MF Global FX utilizes an STP (straight through processing) system whereby client orders are sent through to banks and filled on bank prices in a near-instantaneous fashion. During periods of high volume, hanging orders may occur. This is a condition where an order sits in the [Orders] window after it has been executed. The order will be highlighted in red, and the [Status] column will indicate "executed" or "processing." Generally, the order has been executed, but it is simply taking a few moments for it to be confirmed by the banks.
During periods of heavy trading volume, it is possible that a queue of orders will form. That increase in incoming orders may sometimes create conditions where there is a delay from the banks in confirming certain orders. Depending upon the type of order placed, outcomes may vary. If this is a Market Range order and the order cannot be filled within the specified range, or if the delay has passed, the order will be rejected. If it is an At Best order, every attempt will be made to fill the order at the next best available price in the market. In both situations, the [Status] column in the [Orders] window will typically indicate "executed" or "processing." The trade will simply take a few moments to move to the [Open Positions] window. Depending upon the order type, the position may in fact have been executed, and the delay is simply due to heavy internet traffic.
Keep in mind that it is only necessary to enter any order once. Multiple entries for the same order may slow or lock your computer or inadvertently open unwanted positions. If at any time you are unable to access the MF Global FX Trading Station to manage your positions, you may call the Trading Desk directly at 1.212.825.1471/2.
Greyed Out Pricing
MF Global FX does not intentionally "grey out" prices; however, this is a condition that occurs when liquidity decreases, and market makers that provide pricing to MF Global FX are not actively making a market for particular currency pairs. At times, a severe increase in the difference of the spread may occur due to a loss of connectivity with a bank or due to an announcement that has a dramatic effect on the market that dries out liquidity. Such greying out of prices or increased spreads may result in a Maintenance Margin Warning or a Liquidation Margin Call on a trader’s account. When an order is placed on a currency pair affected by greyed out prices, the profit/loss will temporarily flash to zero until the pair has a tradable price and the system can calculate the profit/loss.
Hedging
The ability to hedge allows a trader to hold both buy and sell positions in the same currency pair simultaneously. Traders have the ability to enter the market without choosing a particular direction for a currency pair. While the ability to hedge may be an appealing feature to some, traders should be aware of the factors that may affect hedged positions.
DIMINISHING MARGIN
A Maintenance Margin Warning or a Liquidation Margin Call may occur even when an account is fully hedged, since spreads may widen, causing the remaining margin in the account to diminish. Should the remaining margin be insufficient to maintain any open positions, the account may sustain a Maintenance Margin Warning or even a Liquidation Margin Call, closing out any open positions in the account. Although maintaining a long and short position may give the trader the impression that his exposure to the market's movement is limited, if spreads widen for any period of time that leads to insufficient available margin, it may certainly result in a Maintenance Margin Warning or a Liquidation Margin Call on all positions.
ROLLOVER COSTS
Rollover is the simultaneous closing and opening of a position at a particular point during the day in order to avoid the settlement and delivery of the purchased currency. This term also refers to the interest either charged or applied to a trader's account for positions held "overnight," or after 5 PM EST on the MF Global FX Trading Station. The time at which positions are closed and reopened, and the rollover fee is debited or credited, is commonly referred to as Trade Roll Over (TRO). It is important to note that rollover charges will be higher than rollover accruals. When all positions are hedged in an account, although the overall net position may be flat, the account can still sustain losses due to the spread that occurs at the time of the Trade Roll Over.
EXCHANGE RATE FLUCTUATIONS (PIP COSTS)
Exchange rate fluctuations, or Pip Costs, are defined as the value given to a pip movement for a particular currency pair. This cost is the currency amount that will be gained or lost with each pip movement of the currency pair's rate and will be denominated in the currency denomination of the account in which the pair is being traded. On the MF Global FX Trading Station, the pip cost for all currency pairs can be found by selecting [View], followed by [Dealing Views] and then by clicking [Simple Rates] to apply the checkmark next to it. If [Simple Rates] already has a check mark next to it, viewing the dealing rates in the simple view is as easy as clicking the [Simple Dealing Rates] tab in the dealing rates window. Once visible, the simple rates view will display [Pip Cost] on the right-hand side of the window.
When a trader's position is hedged against exchange-rate risk, it is still exposed to exchange-rate volatility if the counter currency of the pair being hedged differs from the denomination of the account.
For example, if you are both long and short 10K USD/CAD with -500 pips in gross P/L, one can assume the spread will remain constant. Keep in mind that P/L is in terms of the counter currency, thus the losses are 500 CAD and are converted at the spot rate. If the hedge goes on at 1.1000, the GROSS P/L is 500/1.10 = 454.54 USD.
If the rates decrease to 1.0300, the same 500 pips of locked-in loss is now worth 500/1.03 = 485.43 USD, 30 USD more on only a 10K hedge. Though slight for this example, this is multiplied as hedged volume increases; consequently, it can create circumstances that may drain existing margin.
This can be very important for clients who have very large, hedged JPY positions: if the USD/JPY falls 1000+ pips, it can (depending on leverage, of course) have a severe impact on the gross P/L of any hedged JPY positions.
Inverted Spreads
MF Global FX maintains a predominantly agency execution model. When you trade with MF Global FX, you are trading on feeds that are being provided by multiple top-tier banks and financial institutions. Unfortunately, online trading technology is not perfect and, in rare cases, this feed can be disrupted. This may only last for a moment, but when it does, spreads often become inverted.
While it may be tempting to place a "free trade," keep in mind that the prices are not real and your actual fill may be many pips away from the displayed price. In the event that trades are executed at rates not actually offered by banks and financial institutions, MF Global FX reserves the right to reverse such trades, as they are not considered valid trades.
Holiday/Weekend Execution
TRADING DESK HOURS
The quoting hours for MF Global FX are from Sunday 5:15 PM EST through Friday 4:00 PM EST. The open or close times may be altered by the Trading Desk because it relies on prices being offered by banks and financial institutions that provide liquidity for MF Global FX.
Outside of these hours, most of the major world banks and financial centres are closed. The lack of liquidity and volume during the weekend impedes execution and price delivery.
PRICES UPDATING BEFORE THE OPEN
Shortly prior to the open, the Trading Desk refreshes rates to reflect current market pricing in preparation for the open. At this time, trades and orders held over the weekend are subject to execution. Quotes during this time are not executable for new market orders. After the open, traders may place new trades, and cancel or modify existing orders.
LIQUIDITY
Please be aware that during the first few hours after the open, the market tends to be thinner than usual until the Tokyo and London market sessions begin. These thinner markets may result in wider spreads, as there are fewer buyers and sellers. This is largely due to the fact that for the first few hours after the open, it is still the weekend in most of the world.
GAPPING
Sunday's opening prices may or may not be the same as Friday's closing prices. At times, the prices on the Sunday open are near where the prices were on the Friday close. At other times, there may be a significant difference between Friday's close and Sunday's open. The market may gap if there is a significant news announcement or an economic event changing how the market views the value of a currency. Traders holding positions or orders over the weekend should be fully comfortable with the potential of the market to gap. One of the great things about trading at MF Global FX is that outside of announced major holidays, the trading hours routinely close only once a week on the weekends, which corresponds with the hours of major banks and financial institutions. In contrast, most stock exchanges close five times each week, and can gap significantly on each day's open.
WEEKEND RISK
Traders who fear that the markets may be extremely volatile over the weekend, that gapping may occur, or that the potential for weekend risk is not appropriate for their trading style, may simply close out orders and positions ahead of the weekend.
Margin Calls
The idea of margin FX trading is that your margin deposit acts as a good faith deposit or a performance bond to secure the larger notional value of your position. Margin FX trading allows traders to hold a position much larger than the actual account value. The MF Global FX Trading Station has margin management capabilities, which allow for leverage up to levels permitted by regulation.
Trading forex on margin carries a high degree of risk, since high leverage may work against you as well as for you. If account equity falls below Maintenance Margin Requirement, a Maintenance Margin Warning will be issued with 72 hours given to bring the account back above margin requirement. If account equity falls below Liquidation Margin Requirement at any time, a Liquidation Margin Call will trigger to liquidate all open positions. Please review the MF Global FX Margin Policy & Procedures.
Please keep in mind that when the account's Usable Maintenance Margin or [Usbl Maint Mr] as displayed in the [Accounts] window of the trading platform reaches zero, no additional positions may be opened and account is in "liquidation only" mode. At this time a "pop-up" message will appear in the [Messages] window and a "W" will appear in the [MC] column in the [Accounts] window.
Traders have 72 hours to restore Maintenance Margin to a sufficient level to resume normal trading. If after 72 hours the account is still margin-deficient as determined by regulation, some or all open positions may be closed at the discretion of MF Global FX.
If account equity falls below Liquidation Margin at any time, a Liquidation Margin Call will trigger to liquidate all open positions.
A "Y" appears on the [MC] column in the [Accounts] window of the trading platform whenever positions are liquidated from insufficient margin.
Margin requirements are subject to IIROC regulation and may change at anytime without notice. MF Global FX may set higher margin requirements based on account size, simultaneous open positions, trading style, market conditions, etc. It is the trader's responsibility to ensure there is sufficient margin in the account at all times. All quotes and trades are subject to the terms and conditions of the Client Agreement accessible from this website.
Chart Pricing vs Prices Displayed on the Platform
It is important to make a distinction between indicative prices (displayed on charts) and executable prices (displayed on the MF Global FX Trading Station). Indicative quotes are those that offer an indication of the prices in the market, and the rate at which they are changing. Market watchers, such as S&P and eSignal, compile indicative quotes as a proxy for the market's actual movement. These prices are derived from a host of contributors such as banks and clearing firms, which may or may not reflect where the MF Global FX liquidity providers are making prices.
Indicative prices are usually very close to executable prices. Indicative quotes only give an indication of where the market is. Equity and futures traders trading through a broker will see indicative quotes. Executable quotes ensure finer execution and thus a reduced transaction cost. Equity and futures traders are used to prices being the same at any given time, regardless of which firm they are trading through or which charting provider they are using, and they often assume the same holds true for spot forex.
Because the spot forex market is decentralized, meaning it lacks a single central exchange where all transactions are conducted, each forex broker may quote slightly different prices. Therefore, any prices displayed by a third-party charting provider, which does not employ the forex broker’s price feed, will reflect "indicative" prices and not necessarily actual "executable" prices where trades can be executed.
* Please note MF Global FX in its discretion may or may not offset individual transactions in Micro (1K) accounts, unlike transactions in standard (100K) and Mini (10K) accounts.
