Does your broker protect you from unnecessary stop-outs?

In this scenario, if the stop was triggered on the leading side of the spread at the bank bid price (dotted blue line), you’d be stopped out at 1.14 (blue arrow). For anyone using the MT4/MT5 platform, that volatility means an instant loss, with no chance of recovery.

But check out the solid yellow line – that’s the ECN feed we use. And since Saxo’s stops are triggered on the trailing side of the spread at the ECN offer price, your stop (yellow arrow) remains untriggered through that price move down. Your position is safe and when the price recovers, you’re set to take profit, exactly as planned.

Now, we will note that this trigger method means that stop orders overall won’t be executed precisely at your specified level since the primary inter-bank venue’s offer price will always touch that level later than our own offer price. We believe that, just like any insurance policy, it’s a price worth paying for having more protection when you really need it.

If you’d like to read more about our order execution policy, you’ll find it here.

Stayin’ alive

Margin close-outs are the ultimate stop-out, and the only one you have no control of. Simply put, if your margin utilisation reaches 100% at any time, a close-out will be triggered and your positions closed out automatically.
 
While close-outs do guard against larger trading losses, they can also be triggered too soon during periods of short-term volatility, whether caused by economic news or reduced liquidity during a value date rollover or the market’s open and close.

To ensure that you stay in the market longer, we calculate the value of unrealised profit/loss on your FX spot and forward positions using the opposite side of the spread. So, a net long position is valued on the offer price rather than the bid price – and vice versa for a net short position, which we value on the bid price rather than the offer.

Let’s say EURUSD is trading at 1.19/1.20. You have USD 10,000 in your account and open a USD 120,000 position. The margin requirement for this trade is USD 1,195 (USD 120,000 x 1.0%) and your margin utilisation at this point is 12% (USD 1,200 / USD 10,000).

Later, the market moves and EURUSD is bid at 1.11 and offered at 1.12. The spread might be small, but whether your unrealised profit/loss is valued on the bid or on the opposite side can make a world of difference to your trading. 

Take a look:

If valued on the bid price, you have an unrealised loss of USD 9,000. That means your margin utilisation has risen to 112%, calculated as USD 1,115 / USD 1,000 (USD 10,000 – 9,000). And since that puts you over the 100% margin use threshold, you’d be closed out.

But at Saxo, that won’t happen – since we calculate unrealised profit/loss on the offer price, you’d only have an unrealised loss of USD 8,000 in this scenario. Crucially, this means your margin utilisation would have only risen to 56%: USD 1,115 / USD 2,000 (USD 10,000 – 8,000). No close-out.

Keeping traders safe

At Saxo, we don’t offer the high levels of leverage that some global brokers do – and for good reason. We know that high levels of leverage combined with automated margin close-outs can create a toxic cocktail of frequent “too-soon” stop-outs, even in normal market conditions. In fact, with 400:1 leverage, there’s a 75% greater chance you’ll encounter a price move that’s more than or equal to your margin requirement.