What Is a Requote in Forex Trading?

A requote in Forex trading occurs when a broker is unable to execute a trade at the price a trader requested. Instead of executing the order at the original price, the broker offers a new price, typically less favorable than the requested one. The trader then has a brief window to accept or reject this new price. Requotes are a common experience, especially in fast-moving markets or when dealing with certain execution models.

How Requotes Happen

When a trader initiates a market order, they are essentially asking to buy or sell an asset at the current market price. This request is sent to the broker, who then attempts to fill the order with their liquidity providers. However, due to the rapid fluctuations in the Forex market, especially during high volatility or economic news releases, the price of an asset can change significantly in the milliseconds it takes for the order to reach the liquidity provider and for confirmation to return to the broker.

If the price moves beyond a certain threshold (often defined by the broker or market conditions) between the time the trader clicks 'buy' or 'sell' and the order's execution, the broker may be unable to fill it at the original requested price. At this point, a requote is generated, presenting the new, updated price.

Reasons for Requotes

• Market Volatility: During periods of high volatility, prices can move very quickly. The speed of price changes can make it difficult for brokers to guarantee the requested price.
• Network Latency: The time it takes for an order to travel from a trader's terminal to the broker's server and then to liquidity providers can cause delays, during which prices may shift.
• Insufficient Liquidity: If there isn't enough liquidity at the requested price level to fill a large order, the broker might need to source liquidity from multiple providers, potentially leading to a requote or even a rejection.
• Broker's Execution Model: Some brokers, particularly those operating with certain dealing desk models, might be more prone to issuing requotes, especially if they are taking the opposing side of a client's trade. However, even brokers using an ECN/STP model can experience requotes due to underlying market conditions.

Impact of Requotes on Traders

Requotes can be frustrating for traders as they can disrupt trading strategies and potentially lead to missed opportunities or less favorable entry/exit points. For strategies that rely on precise entries and exits, such as scalping, frequent requotes can significantly impact profitability.

While requotes are a reality of trading in a dynamic market, excessive or consistently unfavorable requotes might indicate an issue with a broker's execution quality or their liquidity arrangements. Traders should be aware of how their broker handles execution and what their typical requote frequency is, especially during critical market events.

Avoiding Requotes

While it's impossible to completely eliminate requotes due to market dynamics, traders can take steps to minimize their occurrence:

• Trade During Less Volatile Periods: Avoid trading immediately before or after major economic news releases if you are sensitive to price changes.
• Use Limit Orders: Unlike market orders, limit orders specify an exact price at which a trade should be executed. If the market price doesn't reach your specified limit, the order won't be filled, but you won't receive a requote. However, the order might not be executed at all if the price moves away.
• Choose a Broker with Robust Execution: Brokers with strong liquidity provider relationships and efficient execution technology are generally better equipped to fill orders at requested prices or with minimal slippage. Factors like the number and quality of liquidity providers can affect how orders are processed. More information on this can be found in articles discussing how liquidity providers affect Forex execution.
• Understand Slippage: In some cases, instead of a requote, an order might be executed at a slightly different price than requested – this is known as slippage. Traders can sometimes set a maximum slippage tolerance in their trading platform.

Conclusion

Requotes are an inherent part of Forex trading, reflecting the rapid and dynamic nature of the market. While they can be an inconvenience, understanding why they occur and how to mitigate their impact can help traders navigate the market more effectively. Choosing a broker with transparent and efficient execution practices is crucial for minimizing such disruptions.