Trader today tried scalping 35-lot clips of EURUSD instead of GBPUSD. Even though the euro moves less than the pound, so the potential profit per trade is less, maybe the increased liquidity of the EURUSD might reduce the frequency of the “off quotes” rejections. I can only hope! Just received the trade log from Nigel (the day trader). Because of his good performance today, I though that the executions were better than before. Boy was I wrong!

Feedback from trader: Quote, “A real fight today….not just to get a fill, but when I have a position to get out!” Thank you Lord for giving our trader a lot of balls, I mean courage!

When I asked him if the executions on the EURUSD were better than the executions on the pound, he said, “The fills on the EUR/USD are no faster or better than on the GBP/USD – as you’ve seen in the log. Worse maybe! The reason I switched to Euro is because the spread on the £ [pound] has widened out to around 3 pips with FXLQ…even on a fast mkt – although of course it is variable. On the EUR/USD the spread is usually just 1 pip… esp on a fast mkt. So although the volatility is greater with the £ (which I like, since it tends to move further in either direction) its only 1 pip to break even point on the Eur instead of 3 with the £… and the 3 pip spread on the £ means my stop is also that much nearer! So its all about risk/reward and how long it takes to get executions! So I may stay with the Euro for now until/unless the spread narrows with FXLQ to 1 pip on the £.”

When you look through my comments on the trade log link below, you will see that delays in reporting trade rejections are still common; so are delays in the activation of stops and a great number of trades rejected with the “off quotes” message even though the price has not moved beyond the 2-pip deviation setting. We are also getting “requotes” and sometimes it takes many attempts to get out of a position even though the price is not going anywhere. These problems must be corrected by FXLQ.

By the way, the “frozen trade” from Friday 11/3/06 was reversed today by FXLQ.

Click here to see the trading log for this incident (in a new window).

Please don’t think I’m sick. I just feel that we need a losing trading day every once in a while to humble us up Don’t you think? Feedback from trader: Many “off quotes” messages. “Off quotes” message also came up while trying to enter two trades that would have more than likely been profitable. Two losing day trades – one “off quoted” while trying to exit at a profit. Two straight “requotes” during final attempt to buy GBPUSD at 1.9006 and then 1.9009.

Click here for the trade log (in a new window).

In the log, you will find a high frequency of “off quotes” messages and 2 requotes. On many of these instances, the price does not seem to have moved by more than 2 pips since the order was sent (so reason #1 on 11/10/2006 cannot be used to properly explain the rejections).

Another thing that I do not understand is why the trader was requoted in his last attempt to buy 35 GBPUSD. The execution or rejections are supposed to be automated. The “requote” is something that is common when a day trader is on manual execution against a dealing desk, which is not the case here. In fact, he was requoted twice – back to back. Once at 17:52:10 at 3 pips higher than his initial buy order. When he accepted the requoted 1.9009 price, he got requoted again at 1.9013. It is true that the price was moving when the order was placed, but if the 2-pip deviation setting had been exceeded, why didn’t the trader get rejected with the “off quotes” message instead? Why the “requote” message? Click to see the chart showing this “requote incident” (in a new window).
After the “requote” incident above, the trader tried entering a short Yen position at 23:50:07 when the price was at 118.01. It took 11 seconds to get back a rejection with our favorite “off quotes” message. By that time, the currency price had moved considerably. Click to see the USDJPY chart snapshot of this (in a new window).

On Saturday Robert Gray from FXLQ called me and told me that FXLQ was going to reverse the NFP losing trade on 11/3/06 due to the mysterious “price freeze.” Awesome!

He said that even though the initial fill at 1.9093 was valid, the fact that it took over two minutes to report this to the trader was not acceptable. I agreed, because the trader was basically “locked in” a trade he could not exit for over two minutes.

This is great news and it shows that FXLQ is trying to make things better all the time.

Robert also acknowledged the “reporting delay” issue and confirmed that FXLQ’s technical team is working on the issue so that the confirmations come back in 1 second or less (as they should).

We won’t stop day trading while we wait for this delay issue to be resolved, but we will proceed with caution. My goal is to eventually, if possible, reach the 100-lot per trade mark.

As you can see, there are a lot of things going on in the background – and many unknown variables at work. This is normal, as it always is when you are trying to do something that has not been done before. I thank you for your patience throughout this entire ordeal.

So a gain turns into a loss while trying to exit.

After two straight positive 25-lot transactions, one transaction wiped out all gains. See the section from the MT4 trade log that shows the losing transactions and the delay in exiting the trade.

The example above is self explanatory. When the trader tried to exit at a 3-pip profit, it took 25 seconds for the system to reject his order. He got out of his trade later at a 6-pip loss. The stop also took 24 seconds to activate.

Discussion with Trader:

I discussed with the trader why we were getting so many trade rejections and the “off quotes” message. Not that many people understand the messages generated by MT4. MT4 is designed by Metaquotes, a Russian company that is very unfriendly when it comes to support. They are also very difficult to understand due to the language barrier. Despite these setbacks, it is still one of the most popular platforms to trade forex! Anyway, I thought about valid reasons why the “off quotes” message comes up on MT4. Here they are:

1) Because of MT4′s Deviation Setting

When a “Buy” or “Sell” order is submitted via MT4, the order is cancelled if the price has moved beyond the maximum “deviation” setting by the time the order gets to its destination. The maximum deviation setting allowed is set by the broker, but can be reduced by the trader. We have a 2-pip deviation setting currently in place. That means that if the trader is trying to buy GBPUSD at 1.9050 while the price is moving quickly up and the price jumps up to 1.9053 by the time the order gets to where it’s going, the order should be rejected and the “off quotes” message displayed in the trader’s log. This is a safety feature that’s in place for the trader’s protection and is especially useful when scalping. Since we are trading during active market times, it is obvious that some orders will naturally be rejected because of this – But this does not explain all of the “off quotes” rejections that we’re experiencing. It also does not explain the delays we experience sometimes in the execution or rejection of a trade.

2) Because of a liquidity shortage

All real financial markets have liquidity limits, even forex. That means that if you want to buy 25 lots of EURUSD at 1.2800 when someone only wants to sell 15, you can request to either get a “partial fill” for 15 lots at 1.2800 or none at all. Since MT4 does not accept partial fills, the former is not an option. In the example above, the order would be cancelled. This feature is called “Fill or Kill;” that is, fill my entire order or none at all. MT4 is a fill or kill system. This can obviously happen in the fx market, but since we have been trading a maximum of 25 lots at a time, I don’t know if this has been a factor or not in our “off quotes” rejection experience. This is impossible for me to know because MT4 does not display the size available at each price level (or “market depth”). So far, I have been relying on what FXLQ has told me: that 100-lot executions should not be a problem in general. This also has nothing to do with the reporting delay issue that we have been also experiencing.

3) Because of a dealer’s failure to respond or rejection

This reason was brought to my attention by Andrei Savitski from MetaQuotes (the company that makes MT4) on 8/18/2006 in an email answering my questions regarding the problems we were having back them with FXLQ’s first MT4 solution. This should only be the case when there’s a dealing desk behind the price feed that has the ability to manually control trade executions to some degree. This should not be the case here (as has been assured to me over and over by FXLQ), as the orders are supposed to go “straight through” (or STP) the market and execute automatically without manual intervention.

4) Unknown Technical Issue

Technology! We can’t live with it, but we can’t live without it. The MT4 system that FXLQ has made available to us is state-of-the-art. No other firm that I’m aware of has made so much progress in this field. Unfortunately, when “new frontiers” are explored in the technology world, there are always glitches and problems of all types that arise – sometimes these problems are not apparent right away and people take a long time to notice and then solve them. The reason why we are experiencing delays and so many “off quotes” rejections on MT4 might be a result of “unknown technical issues.” These issues should be corrected as we move forward with our DTT robot program.

NOTE: When I spoke to Robert Gray on Saturday (11/11/06), he mentioned that an unknown technical issue might be the cause of these problems. See my comments on 11/11/06.

Good day in general, but it’s a shame we had to cut back the size initially because of all the trade rejections and delays (and because of the fear of having another trade freeze up on us, like on Friday 11/3/06 [see 11/3/06 journal entry]). Even today, there are many trade rejections. These are just some examples taken from the MT4 trade log to give you an idea what’s happening (the sections in RED were added by me):

EXAMPLE1

Why did the system take 36 seconds to respond? In this example, it would have been possible for the price to have plummeted from 1.9045 and for the trader to have found out 36 seconds later that he had been filled at a much higher price than the market price (see EXAMPLE4 below).

EXAMPLE2

The example above shows the trader’s attempt to close out an existing position at a profit of 2 pips that was rejected 18 seconds later. Why? One thing is waiting 18 seconds to get into a position, but it’s a totally different thing waiting 18 seconds while trying to get out of position. 18 seconds is an eternity in any market. Thank God that we have a trader with a lot of balls guts!

EXAMPLE3

The example above shows what happened after the trader bought 5 GBPUSD at 1.8989. It took the 8-pip stop loss 25 seconds to activate after the EA command was given. It took 15 seconds for the exit order to be rejected. This is too much time. We should be seeing sub-1 second executions and rejections.

EXAMPLE4

The example above shows what happened after the trader placed an order to sell 5 GBPUSD at 1.8984. It took 1 minute and 30 seconds for the order to get filled! What would have happened if the price had shot up by 100 pips during this 1 minute and 30 seconds after a fill at 1.8984 was reported 1 minute and 30 seconds later? Would we have had to eat the loss? It also took the 8-pip stop loss 37 seconds to activate after the EA command was given.

We know that the FXLQ MT4 trading software is capable of executing and rejecting trades instantly because we have seen it in the logs, so it perplexing why the delays above are occurring).

NOTE: We received some reassuring news regarding this “delay reporting ” issue on Saturday 11/11/06 from FXLQ. See the 11/11/06 entry for more information.

Feedback from trader: Experienced a high percentage of trade rejections (“off quotes”). Only one 25-lot trade today. Boring day in the world of forex.

Some trades at the 25-lot level. Overall positive, but nothing to throw a party over. The fx market was not very active today either.

Feedback from trader: More difficult to enter a position this week for some strange reason. More frequent trade rejections with the dreaded “off quotes” message. It’s taking noticeably longer to get an order filled.

I know that the fact that MetaTrader 4 is a fill-or-kill system increases trade rejections, but they seem to be occurring more often now. What is of utmost concern to me is that the system is taking sometimes “too long” to report whether the trade was rejected or not.

Today was a dead day. “Come on, Dan. Look for something positive!” Oh, yeah; the great majority of the accounts were added to the PAMM.

Friday was NFP day – the most hectic day for the forex market. Before the bulk of the accounts were added to the PAMM, Nigel [the trader] tried to buy 25 lots of GBP/USD (a.k.a. “cable” or “pound”) at 1.9093 after the release of the initial NFP figures that were bearish for the US Dollar. After clicking “Buy,” nothing happened, which was strange. He then proceeded to press Cancel just in case. Again, nothing happened. A few seconds after that, cable stayed “mysteriously frozen” at 1.9083 BID by 1.9090 ASK for around two minutes. During this time, all of the currencies that trade against the US dollar started moving around 10 to 20 pips in a direction equivalent with USD weakness (e.g., EURUSD moved up from around 1.2770 to around 1.2790). Less than a minute later, when the revised numbers from the prior month were released, the prices turned around and began approximately a 2-minute bullish USD move (from 8:30 AM to 8:32 AM EST); that is, a move in the other direction.

I was tracking Nigel’s trading on the trading platform since the NFP release and found it odd that he did not open any positions despite the strong market move. I watched as the EURUSD quickly, but progressively, dropped during the two-minute down move – while the GBPUSD remained frozen at 1.9083 BID by 1.9090 ASK. Still no position.

All of the sudden, the GBPUSD reemerges from its mysterious slumber at 1.9030! Still no position.

Over 20 seconds after GBPUSD starts moving again…abracadabra…a 25-lot cable position appears! What?!?!?! That’s not the end of it though. Guess what the price of execution was? 1.9093! Net result? A position down over 60 pips! – way beyond the tight 8-pip stop loss that’s used in this program – wiping out half the gains that had been generated so far in the live test account.

I thought to myself, “This has to be a mistake!”

When Nigel exited this “freak trade” (# 57474), it delivered a -$14,250.00 blow to the PAMM. Ouch!!! (don’t worry, your account was not in the PAMM when this occurred – so I won’t be sending you a bill anytime soon; I just want to entertain you a bit). Even though Nigel was able to make back half the loss during the same day after this incident, I emailed FXLQ to let them know what happened and sent them a link to the video.

Not having the patience to wait for a reply, I called FXLQ and spoke to James, who said he was going to look into it.

On Tuesday, James informed me that the trade was valid because MT4 “froze up” and the market gapped down after the NFP numbers.

I explained to him that this didn’t make sense, since cable didn’t gap on any of the other price feeds that we track simultaneously. I also told him that if cable gapped, some other pairs would have gapped down too. This didn’t happen. In fact, if you observe the price for EURUSD on the MarketWatch window of the video, it dropped gradually throughout this whole ordeal – giving traders ample time to exit trades. I added that what happened to the pound did not seem like a gap. It just seemed as if the prices stopped coming in and it stayed “frozen” at the same value. James claimed that this wasn’t the case and that the execution was valid, despite the fact that it was reported by MT4 minutes after it occurred.

Even though I’m not happy with the situation, it seems that we might have to “take it on the chin.” We haven’t stopped day trading because of this, but we have definitely slowed down increasing the size per trade until we feel a bit more comfortable with the executions.

Will we eventually be able to execute 100 lots ($10M) at a time on this system? I don’t know. Let’s see what happens next week.

NOTE: We received some reassuring news regarding this “frozen trade” issue on Saturday 11/11/06 from FXLQ. See the 11/11/06 entry for more information.

You probably know that I like to run a very transparent operation. That’s why I keep DTT clients informed and “tell it like it is.” Unfortunately, sending email updates has become a bit cumbersome (every day seems to bring us more and more surprises). I could have already published a book using all the emails I send out on a daily basis!

As a result, I have decided to provide “news” items for the trading robot program – to keep the clients up to date whenever important information comes up.

I am starting this journal today since that’s when most accounts were added to the MT4 PAMM.

Before all of you jump out of your seats screaming, “Bloody Murder,” every time we have a problem with the forex brokerage firm (FXLQ) where the accounts are held, I would like to remind you that FXLQ has made great progress and has put a lot of effort into their new institutional MT4 system. I must admit that no platform or broker is perfect, but I am not aware of any other broker in the industry that has gotten this far on MT4. Thanks to them, we now have a place to reap some of the benefits of the robot program. I believe that the day trading platform can be “perfected” further, but we will still use it in the meantime. At the same time, I’m working with other firms on new solutions to diversify our capital going forward.