A new marketing strategy has lately been followed by many of the Institutional Liquidity Providers (LPs) and FX Brokers, which is not only deceiving the investors but also many brokers who are dependent upon the above mentioned brokers for their Liquidity. And the strategy followed by them can be termed as “Window Dressing” of Spreads.
An LP provider or a brokerage firm displays to the world the ECN and tight spreads, but now the question is whether the liquidity at those displayed prices really available or the client gets its transaction fulfilled at some other price. Thus, with the clients/brokers believing that they are getting the best spreads from their brokers/LPs respectively, they might be mistaken for what I think that they must be paying higher bids and ask price than the one displayed or so advertised.
Here is a example taken from the real time quotes from some LPs and forex brokers. Lets have a look:
|Sell (200K)||Buy (500K)|
|900K 1.13555||1000K 1.13559|
|2000K 1.13557||1800K 1.13561|
|3500K 1.13550||2600K 1.13566|
In this example, the spread in EURUSD is 0.00002 pip, according to the Top of the Book price, where only 2 standard lots (200K) of liquidity is available at the Bid(sell) price of 1.13553 and only 500K (5 standard lots) are available at the Ask price of 1.13559.
If we take into account that there is not only one investor present, the number of investors varies in hundreds or thousands, who trade at the same time situated at different number of locations. So, it is probable that an investor may not get a fill at top of the book price.
For any client who wants to buy more than 2 standard lots of EURUSD, say 4 standard lots, then it is likely that he would take slippage since at the Book price enough of the liquidity was not available. So, the client would end up paying a spread of 0.5 pips with the bid price of 1.13555.