The effect of volatility
In highly volatile markets, prices can make dramatic movements in a matter of milliseconds. If this happens between the moment you place an order and the point when that order is executed, then it could be filled at a different price to the one you specified – possibly one significantly less favourable for you. This is called slippage.
The quicker your provider can execute your order, the lower the risk of this happening. It’s therefore advisable to choose a provider whose platform technology is both fast and robust, capable of executing large numbers of deals simultaneously.
While you want your order to be executed quickly to avoid an adverse slippage, it’s worth bearing in mind that the price might also slip in a direction that’s more favourable for you. Some providers have the facility to give you a better price if it becomes available during execution.
How poor liquidity affects execution
If you were trading in the underlying market, low liquidity might mean you would simply be unable to find a buyer or seller willing to transact with you, or at least not at the price you wanted.
However, with a spread bet you don’t directly need to find a party to take the other side of your deal – your transaction is just with your provider. As we explained in how providers make money, they may be able to fill your order without hedging it in the underlying market.
If your provider does need to hedge your bet but can’t do so due to a lack of liquidity, your order may be rejected. This can happen when your bet size is particularly large – and perhaps exceeds the amount of exposure your provider is prepared to accept in that particular market.
Choosing how your deal is executed
If your whole order can’t be executed exactly as you’ve requested then in most situations it will be cancelled. However, some providers offer advanced dealing options to help ensure your bet goes through.
For example, with IG you can choose to accept a partial fill. This will see as much of your bet as possible filled at the price you request, with the remainder being cancelled.
For more information on dealing options you can read more about these advanced platform features.
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