This article explains the trading environment of XM. You may have heard that XM has an excellent trading environment. But you may not know the factor behind it. It would be nice if you can understand why many traders praise XM with this article.
I am also doing FX trading via XM. In my opinion, XM’s order execution quality is better than other brokers, which sometimes have a delay of execution called “slippage.”
The amount of loss due to slippage per order may be trivial. But as the frequency of slippage increases, so does the loss. The purpose of this article is to introduce how excellent a trading environment XM provides.
[Summary of this article]
- Any trader should use a broker with high execution quality.
- XM has an execution rate of 99.35% and rarely rejects the order execution.
- Exchange marry gives high execution quality but lacks transparency.
- Cover deal has high transparency but low execution quality.
- XM specializes in the exchange marry. With many orders from many clients and the original system which eliminates any artificial intervention in orders, XM offers high execution quality and a transparent trading environment.
- Many traders prefer XM because of its excellent trading environment.
Contents
Execution Rate and Execution Quality
“Execution rate” means how many orders are executed within a specified time span.
FX traders have to decide the currency pair to place an order. However, there is a time lag between the time an order is placed and the time the order is executed. To calculate execution rate, the time lag is divided into a certain time span, mainly by seconds.
If a broker has an execution rate closer to 100%, the broker can be considered to have high execution quality. Otherwise, the broker’s execution quality can be considered poor.
As many brokers do not disclose execution rate, it is difficult to compare it between brokers. XM's execution rate is considered to be one of the highest in the industry. According to XM’s execution policy, 99.35% of all orders are executed within one second and there is no rejection of orders.
XM Official Site (Outside Europe):
As finance license differs depending on the country of broker’s residence, XM has multiple official sites.
Traders living in Europe can do transactions in a highly secured environment under CySec’s regulations.
Traders living outside Europe can enjoy various bonuses and incentives, allowing them to increase money and do aggressive trading.
Execution and Slippage
Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
How Slippage Affects Performance
Using a Broker with High Execution Quality
- Buy order is placed and executed at the expected price, 1.11832 (1). [no slippage occurs]
- The position is closed for profit-taking at 1.12176 (3).
- The trader gains a profit of 34.4pips (1.12176-1.11832).
Using a Broker with Poor Execution Quality
- Buy order is placed at 1.11832 (1) but is actually executed at 1.12038 (2). [slippage occurs]
- The position is closed for profit-taking at 1.12176 (3).
- The trader gains a profit of 13.8pips (1.12176-1.12038).
Here, I refer to an extreme slippage case as an easy-to-understand example. However, much smaller size of slippage frequently occurs. That is why traders should use a broker with high execution quality to secure the profit. Do not ignore even 1 pip slippage. Many drops make a shower. Traders who make money constantly are always looking for a better trading environment.
Why Slippage Occurs
Internet Environment
Many FX traders use the Internet. Therefore, slippage is likely to occur in the wake of the failure of the connection.
However, it is generally believed that slippage rarely occurs in the 3G or 4G internet environment.
Transaction Method and Liquidity
The transaction method of FX trading is divided into "exchange marry" and "cover deal".
Slippage is less likely to occur in the exchange marry. In the cover deal, liquidity is directly related to the occurrence of slippage.
What Is Exchange Marry?
The exchange marry is a method of transaction that mediates a deal between orders inside the same broker. In this method, a broker firstly receives a client's order. Then, the broker finds a counterpart among other clients or takes a counter position. So no slippage occurs at the time of ordering.
Suppose that Trader A places an order via a broker to buy EUR/USD at the rate of 1.2000 with 10,000 currencies. Instead of forwarding A's order to an interbank, a cover bank, or another broker, the broker finds another client of the broker, Trader B, who wants to sell EUR/USD at the rate of 1.2000 with 10,000 currencies. By doing so, orders of A and B are “married” or offset.
Note that a broker may refuse to execute orders that are clearly out of balance with other traders’ orders, or orders of a minor currency pair with few trading participants.
What Is Cover Deal?
The cover deal is a method of transaction that a broker forwards the order to a counterparty outside the broker.
For example, when Trader A places an order to buy EUR/USD at the rate of 1.2000 with 10,000 currencies, the broker forwards it to an interbank, a cover bank, or another broker, to offset it with the equivalent sell order.
Whether a cover deal can be closed depends on the liquidity of the counterparty. That is why slippage is more likely to occur in the cover deal than in the exchange marry.
Advantage and Disadvantage of Each Method
When it comes to the execution quality, the exchange marry is more stable than the cover deal.
However, the exchange marry has a risk of conflict of interest between a client and a broker. Some brokers give their clients a lesser chance of successful trading. For example, when the broker takes a position opposite to the client’s position, the client’s profit becomes the broker's loss. So, the broker may make adjustments unfavorable to the client so that the broker can gain profit.
Meanwhile, the cover deal is more transparent than the exchange marry.
There is no conflict of interest between a client and a broker in the cover deal because the broker only forwards the client’s order to the counterpart outside the broker.
In the end, if you are concerned with the execution quality, you should choose the exchange marry. If you emphasize transparency, you should choose the cover deal. But you may wonder whether it is really necessary to make such an alternative decision. Then, I would like to recommend XM.
XM offers a hybrid trading environment that eliminates conflicts of interest which may occur in the exchange marry. This means that you can do transactions in a transparent environment with high execution quality. That is why many traders prefer XM.
Why XM Is Highly Recommended
Trading Environment Provided by XM
The advantage of XM, which specializes in the exchange marry, is that, thanks to the higher volume of transactions placed by many clients than other brokers, most orders can be married within XM.
In addition, XM eliminates any artificial intervention from its dealing desk to remove all kinds of suspicious conflicts of interest between XM and clients. XM has succeeded in blocking any kind of fraudulent activities, including position manipulation targeting individual clients or specific orders.
These points give many traders credibility for XM, one of the leading FX brokers in the world. In fact, XM has never had any execution rejections or re-quotes.
Beginners and intermediate- and advanced-level traders alike choose XM as their main FX broker. It may be better to experience how rare your order is slipped. If you are interested in XM, give it a try.
XM Official Site (Outside Europe):
Conclusion
Finally, below is the bottom line of this article;
- Any trader should use a broker with high execution quality.
- XM has an execution rate of 99.35% and rarely rejects the order execution.
- Exchange marry gives high execution quality but lacks transparency.
- Cover deal has high transparency but low execution quality.
- XM specializes in the exchange marry. With many orders from many clients and the original system which eliminates any artificial intervention in orders, XM offers high execution quality and a transparent trading environment.
- Many traders prefer XM because of its excellent trading environment.
Thank you very much for sparing your time to read this article.
Please read the other articles if you like.
XM Official Site (Outside Europe):
As finance license differs depending on the country of broker’s residence, XM has multiple official sites.
Traders living in Europe can do transactions in a highly secured environment under CySec’s regulations.
Traders living outside Europe can enjoy various bonuses and incentives, allowing them to increase money and do aggressive trading.
