Forex Support
Author: mctaff
Creation Date: 8/11/2009 4:26 PM
profile picture

mctaff

#1
I notice the Support section has a question about Forex support, the answer to which alludes to Forex trading being similar to Futures, implying you can test Forex with WLD.

Can someone confirm if this is the case, and how one would model the bid ask spread?


Thanks,

David.
profile picture

Eugene

#2
Yes, what is said in the FAQ applies to Version 4 and in general, to Version 5.
profile picture

mctaff

#3
Thanks Eugene. Can you help with how one may model the bid ask spread?
profile picture

Cone

#4
"Slippage for Limit Orders" effectively takes care of that. See the User Guide: Preferences > Slippage and Round Lots.
profile picture

mctaff

#5
I can see that will reduce the profit somewhat, but doesn't sound like it will properly mimic entry and exits.

Eg, if the market moves very close to your stop, and the bid ask spread then triggers the stop - this doesn't sound like it would happen testing using WL, so results won't be too accurate.... I suppose the frequency and style of trading also affect how accurate this method would be....

profile picture

Cone

#6
Limit order slippage does not reduce profit. Limit orders always execute at or better than the limit price. Limit order slippage ensures that the market trades past your limit price by the specified slippage amount before it executes.

So, turn on the option, use limit orders, and set your slippage amount to be the spread.

(Make sure you enter your Fx symbol in the Symbol Info Mgr, and turn on Futures Mode.)
profile picture

mctaff

#7
But doesn't that imply that if the market doesn't move by the slippage / spread, then the order won't get executed?
profile picture

Cone

#8
Right. It's the same thing as offering at the bid, and trades could be flying off on the bid, but your order isn't hit. In Fx, you need to hit the ask, hence the spread. When backtesting, you can only be sure that your limit order is hit if the market trades through it. (In real life, at least in futures, you can get lucky a very small percentage of the time and be served on the bid.)

Remember, unless you go out of your way to create a bid/ask data solution, we're working with the ticks (actual trades) on the chart. So if market crosses your limit order by the spread amount you can be confident that you would have hit the ask in real life. It's the same thing as paying the spread.