Details of the execution of pending orders
Pending orders are bids to buy or sell which are executed if the current price of the trading instrument reaches the value specified in the valuation order. As we know, there are two basic types of pending orders: Limit orders (Buy Limit, Sell Limit, Take Profit) and Stop orders (Buy Stop, Sell Stop, Stop Loss). In Limit orders the bid price is always better than the current one, and in Stop orders it is always worse than the current one.
In the EXNESS ECN-system there is a certain order for executing pending orders. When the current quotation for the trading instrument matches the value given in the pending order, the order is executed. However, in certain circumstances the pending orders are executed partially. This is due to a non-correspondence in the sizes of deals for counter positions. We shall illustrate this situation with a specific example. As was already mentioned, the simultaneous execution of one order is also the execution of another order according to the counter position.
For example, if a trader issues a Buy Limit order to buy EUR / USD at 1.30039 for a volume of 30 lots,
but the system has several orders to sell EUR / USD at 1.30039 for a total volume of 20 lots, then the partial fulfillment process will begin for orders to buy (possibly at a price that is best for the trader). A position to buy EUR / USD at 1.30039 for 20 lots will open, and the existing Buy Limit order will be "decreased" to the exact value of the open position, which is 10 lots. As soon as counter positions in EUR / USD with a corresponding bid price appear in the order book, the procedure for executing the Buy Limit order for 10 lots will begin. It is likely that this order will be executed at the best price for the trader. This situation may occur if the counter bids were submitted to the system almost simultaneously.
It should be remembered that all pending orders may be executed in this particular way, including Take Profit and Stop Loss.
Let's assume that a trader has placed an order to sell 30 lots EUR/USD Take Profit 1.31432 and Stop Loss 1.31570.
When the instrument achieves a price for one of the parameters (Take Profit or Stop Loss), the procedure for the partial execution of a corresponding order, which occurs in the already described order, will begin.
Usually pending orders are executed partially in low-liquidity and high-volatility conditions for specific trading instruments.
Also, keep in mind that any operation to modify and remove existing orders may be rejected if at the time of the change request the order has been processed by the system for sending bids to the interbank market.
Working with limit orders
When speaking about executing pending orders, the details of placing and executing the limit orders of traders should be examined separately. The fact is that when placing Limit orders in the terminal it is impossible to determine in advance if there are sufficient funds for the collateral (margin) at the time this order is executed. It is possible that there will not be enough funds to secure the collateral, and a limit order will be sent to the ECN-system for execution in any case. Then, as soon as the current price for the trading instrument reaches the price specified in the order, the order execution procedure begins. The broker would assume virtually all of the costs associated with the execution of such orders (that are collateralized). Accordingly, many companies that strive to avoid potential losses do not enter their pre-limit orders into the interbank market system ahead of time, and they execute them as normal market orders (when the current price of the trading instrument reaches the level of the pending limit order). In these cases it is not known at what price the limit order is executed: there is a probability of executing the bid at a worse price than was stated in the order.
Our specialists have developed and implemented a unique technology for working with such orders.
After creating a limit order in the terminal, the existing verification system continuously monitors the gap between the current market price and the price specified in the order. The level of the free margin in the trading account is monitored at the same time. If the limit order price is close to the current market price and there are sufficient funds available to open a limit order, then such an order is sent for execution to one of the participating ECN-sites, i.e., it is entered on the interbank market. Next, the participant who has received this order for execution decides how the order is displayed in the order book: either an order is added to an already existing bid, or it may be represented as a separate position.
It is important to know that in our order book only the five orders with the best prices are displayed. Thus the trader's bid will not always appear immediately in it. When a limit order is submitted to the interbank market, the trader's available funds and the gap to the current price continue to be monitored. If the current market price for the trading instrument substantially differs form the price specified in the limit order, or available funds in the trading account are not enough to secure its collateral, such an order is canceled at the bank and remains only in the terminal. When the price that prevails on the market and the level of the limit order price are reached, the order execution procedure begins (when there are sufficient funds available). This technology for transferring limit orders to the interbank market is unique: orders are always verified to see whether the bank that is entrusted is the optimal choice, taking into account the gap between the order price and the market price.
It is also worth mentioning one of the most interesting and useful features of trading on the ECN-platform: the ability to place limit orders inside the spread. Remember, in the order book the trader can always see the top five selling prices and the top five buying prices for the trading instrument. At the same time the best buying price (lowest Ask price) or the best selling price (highest Bid price) in no way limits the trader's abilities; the trader is free to place limit orders with prices ranging between the current best Ask and Bid values.
For example, if at some point the best Ask price for EUR / USD is 1.31047, and the best Bid price is 1.31043, the trader can place a pending Sell Limit order, having specified a price of 1.31044 on it. On the interbank market there are no limits for the gap between the price stated in the order and the current market rate (Stop-levels). The trader can change the current spread for the trading instrument by placing his bids in this way.
Execution of market orders is covered in the section of the same name.