The spot foreign exchange market, at
times, exhibits extreme price volatility, a condition known as a "fast
market". Fast market conditions may be caused by various factors
including, but not limited to, news releases such as non-farm payroll numbers,
order imbalances-significantly greater orders of one type (e.g.,
"buys") than another type (e.g., "sells").
During the extreme price volatility
in fast markets, currency pair prices will "gap" and spreads widen. A
price gap occurs when the price of a currency pair either jumps or plummets
from its last bid/offer quote to a new quote, without ever trading at prices in
between those quotes. As an example, the Euro/US Dollar currency pair may move
from a bid/offer of 1.1891 – 1.1894 and begin trading at 1.1941 – 1.1944,
without ever trading at the prices between those quotes.
The standard industry practice for
currency dealers, including dealers on the interbank market, during fast market
conditions and price gaps, is to set market levels and execute orders manually
without the use of automated systems or services. The process during fast
markets is typically:
- Initially, major money center banks and other online
price providers halt all direct dealing and their pricing engines are
suspended, - Currency dealers analyze event and determine the
correct price, - Prices enter market 20-30 pips wide or more,
- Spreads in market narrow as more currency dealers enter
the market.
In such an event, there may be a
delay in trade execution, which may be significant, while rates are
cross-referenced to ensure valid execution. Further, stops placed close to a
market that has traded through the stop price are re-priced on the next best
tradable price. Thereby, a specified rate order does not provide a fixed-price
guarantee to the counterparty.
Gain Scope, like all currency
dealers, is a "request for quote" dealer, and follows industry
standards for fast market conditions. Gain Scope’ clients that elect to trade
during fast market conditions are responsible for losses incurred by their
account because of such trading, as clients are responsible during normal
trading conditions. These responsibilities are the same responsibilities that
Gain Scope has with its interbank counterparties during normal and fast market
conditions. Gain Scope will not be held liable for any losses due to fast or
volatile markets, electronic disruption in service, service delays, incorrect
information received from service vendors (i.e., quotations, news services)
and/or customers (i.e., client profile data, updated data).
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