Disclaimer for Widening Spread

Definition of widening spread

As a STP platform, Formax provides floating spread transaction. In particular cases, spreads of trading products will be several times of average value, we call it widening spread. Spreads of Forex and precious metals will widen during periods of special news, and spreads of CFDs usually widen at the close of regular futures trading.

Reasons of widening spread

First of all, we need to know STP principles for successful transaction.

Order execution process:
On STP trading platform, orders are executed as the following process:
Clients place orders (buy or sell) --> order passes through liquidity provider platform --> order (buy or sell) received by a bank or a trading dealer in the interbank market (trading network of liquidity providers).

Quotation Formation Process:
In the interbank market, each bank and trading dealer will quote their ask and bid prices --> liquidity provider picks out the best ask and bid prices from the interbank market and quotes to STP platform --> STP platform sends quotation to client --> clients receive the best available price.
Note: Each bank and trading dealer will quote ask and bid prices for every currency pair.
Eg: EUR/USE at some point in time
Quotation 1: Bid Price: 1.32015 Ask Price: 1.32010
Quotation 2 Bid Price: 1.32016 Ask Price: 1.32011
Quotation 3 Bid Price: 1.32016 Ask Price: 1.32013
................
................
All quotations will stream into interbank markets and then flow through to the trading network of liquidity providers, and clients will receive quotations through STP platform.

Why spreads widen?

During periods of market opening and big events, many banks and trading institutions will stop quoting and trading to manage risks. Thus spreads at that time will be very high as only part of the banks and trading dealers provide quotations (The Swiss Franc event is perhaps the most extreme example). Formax quotation spread will widen when bank and trading dealer quotation spreads are at high level.

Time of occurrence for widening spread

1.Several minutes after opening and before closing.
2.The release time of important data and big events
3.The time when other unpredictable risks occur.

Possible influence of widening spread

1.Forced liquidation to lock-position account; (If deposit margin is not sufficient, margin ratio will become too low with decreasing net value after widening spreads. When net value is less than 100% of margin, our system will close clients’ positions. Client’s capital after forced liquidation will decrease with the occurrence of widening spread.)
2.Price differs for the stopping loss and taking profit orders when the spread widens during market fluctuations.

Suggestion for widening spread

1.For clients who prefer lock-position tradings, we suggest to deposit enough margin to avoid forced liquidation when net value is less than 100% of account margin.

Formax’s responsibilities and rights

1.Formax will not be liable for any slippage and forced liquidation loss resulting from widening spreads.
2.Formax will not take any compensation liabilities for slippage loss resulting from market widening spreads.
3.Formax has legal recourse for negative account balance resulting from widening spreads after forced liquidation.