Understanding Requotes: How to Deal with Them and Minimize Their Impact

Requotes are a common occurrence in the world of trading, particularly within fast-paced financial markets such as Forex. A requote happens when a trader places an order at a specific price, but the order gets rejected because the price has changed before the execution of the trade. Instead, the broker offers a new price for the order, which can be either higher or lower than what was originally requested. This phenomenon is crucial for traders to understand because it can significantly impact their trading strategies and their potential profits or losses.

Causes and Common Situations Leading to Requotes in Trading

Several factors contribute to the occurrence of requotes. One major cause is market volatility, where prices fluctuate rapidly due to economic reports, news events, or central bank decisions. During these periods, the delay between placing an order and its execution can result in price changes. Another cause is high market activity; when many trades are being executed simultaneously, brokers may struggle to keep up with real-time prices.

Requotes often happen during “fast markets” — times when market conditions change so quickly that prices become outdated within seconds. They can also occur in less liquid markets or currency pairs where fewer buyers and sellers are ready to make a trade at any given moment.

Strategies for Dealing with Requotes Effectively When They Occur

Here are some strategies traders can use when they encounter requotes:

Immediate response: Traders should decide quickly whether to accept the new quote or reject it and wait for a more favorable price.

Limit orders: Use limit orders instead of market orders. A limit order allows traders to specify the maximum price they’re willing to pay for a buy order or the minimum price they’re willing to accept for a sell order.

Slippage settings: Some trading platforms allow traders to set slippage parameters that define the range of acceptable prices for executing an order.

Tips for Minimizing the Impact of Requotes on Your Trades

To minimize requotes’ impact on trading performance:

Trade during stable periods: Avoid trading immediately after major news announcements when volatility is highest.

Choose reputable brokers: Select brokers with better execution policies and those who offer no-requote policies.

Use technology: Employ high-speed internet connections and trade on electronic communication networks (ECNs) that provide direct access to other market participants.

Educate yourself: The more knowledge you have about how markets operate and what causes price movements, the better prepared you will be.

Conclusion: Best Practices for Traders to Manage and Reduce the Likelihood of Requotes

In summary, while requotes can be frustrating and detrimental to your trading performance, understanding their causes can help you manage them effectively. By employing sound strategies such as using limit orders, adjusting slippage tolerance, and choosing reliable brokers, you can minimize their impact. Most importantly, continuously educating yourself about market conditions and timing your trades wisely will go a long way towards reducing your exposure to requotes in your trading career.


Tags:Trading, Requotes, Forex, Stock Market, Risk Management