I have been trading EUR/USD for a few weeks on FXCM. I have noticed that there can be high volatility spikes on the one minute bar at unpredictable times. When this happens, your stop slips and you get out with a large loss. Furthermore, these high volatility spikes donít appear on the stocks or futures at those same times.
I have an example today below. There was a sudden 26.6 pip up spike followed by a 62.5 pip down spike. On the down spike, slippage on that stop on a 100,000 contract could result in a $625 loss.
How do other traders deal with this? Is it better to use futures, which doesnít have this behavior?
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If you were using tight stops (as you probably should be on a 1 minute chart...), you should not have had any serious problems. The market could have gone against you a million ticks, and it wouldn't have mattered - if you had a stop-loss in place you would have been safe to trade yet another day. I doubt liquidity dropped low enough to give you much slippage in that bear bar (especially if you were only trading 1 lot), so your stops would have been OK.
If losing $600 is too big of a deal for you, and you lost it on this trade, then next time use stops and position sizes that you can be comfortable with. If you are losing a lot of money when things like this happen, you aren't managing your trades properly. The same things happen in every market - not just forex. Futures aren't an exception. Go look at oil futures, for example. Manage your trades properly, use position sizes that you can handle, and use stop-loss orders.
The following user says Thank You to mangolassi for this post:
I trade 6e and the only time I don't like to hold a trade is during NFP and when Draghi is speaking. My max slippage on a stop during news has been 6 ticks. And yes imo futures is better, I have never traded forex.
+1.On some days, there is 100+ PIP move up or down. Especially if the Fed announces something. If you're a beginner, you should use smaller position sizes and adequate stops to preserve your capital. But that's just IMO and start a journal.
This is simply not true. I hope you realize that futures contracts are a very diverse group of products. There are futures contracts on stock indices, oil, metals, currencies, etc... Are you saying that the 6E usually has volatility during known times, while the underlying spot market EUR/USD usually has volatility during unknown times? I trust that you see the fallacy in your argument.
The chart that you posted doesn't even contain that scary of a spike. What you showed DOES happen from time to time, in all markets, and in all time frames. You just have to be prepared with proper trade management. If your account is taking a beating, please don't blame the market you are trading (EUR/USD). In trading, there is only one person to blame - yourself.