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MetaQuotes Software Corp.
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MetaQuotes Software Corp. 2015.10.09 07:59 

New article How to Secure Your Expert Advisor While Trading on the Moscow Exchange has been published on mql5.com:

The article delves into the trading methods ensuring the security of trading operations at the stock and low-liquidity markets through the example of Moscow Exchange's Derivatives Market. It brings practical approach to the trading theory described in the article "Principles of Exchange Pricing through the Example of Moscow Exchange's Derivatives Market".

Anyone who trades on the financial markets is subject to the risks of financial losses. The nature of these risks is different but the outcome is still the same – lost money, wasted time and lasting sense of frustration. To avoid these unpleasant things, we should follow a few simple rules: manage our risks (Money Management), develop reliable trading algorithms and use profitable trading systems. These rules relate to different areas of trading and we should combine them, so that we may hope for reliable positive trading results.

Currently, you can find plenty of books and articles covering the issues of money management, as well as trading systems that can be used in everyday trading activity. Unfortunately, the same is not true for the works on basic safety rules of the market trading.

The article aims to change that by describing the mentioned safety rules that should be followed when trading on the markets. The rules consist of methods and trading practices allowing you to avoid considerable financial losses caused by price spikes, lack of liquidity and other force majeure. The article focuses on the technical risk leaving aside the topics of trading strategy development and risk management.

It brings practical approach to the trading theory described in the article "Principles of Exchange Pricing through the Example of Moscow Exchange's Derivatives Market". While the mentioned article dealt with the theory of exchange pricing, the present paper describes the mechanisms protecting you and your Expert Advisor from accidental financial collapse caused by some dangerous exchange pricing elements.

1.2. Price Spikes

Due to lack of liquidity, price gaps may reach very high values turning into price spikes (deals performed at the prices deviating too much from the market ones). They are very dangerous both for manual traders and automated trading systems. Such spikes trigger pending stop orders executing them at very unfavorable prices.

Let's consider a simple case: suppose that we trade a RUB/USD futures contract and place a Buy Stop order to buy at 64 200. The stop loss is placed at 64 100. We expect the price to move up, however if that does not happen our stop loss at 64 100 is to limit our loss by 100 point. Our risk is seemingly limited but actually that is not true. Let's observe the case when a price spike occurs activating our stop order at quite different prices:


Fig. 4. Tick representation of a spike and Buy Stop order execution

Author: Vasiliy Sokolov

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