Can "widening spreads" cause soft stop?

Please give me a hint about the following problem which is mainly related to details of execution which are unknown to me. The account type is no dealing desk.

Two days ago there was a sudden drop in EUR/CHF to around 1.2004.

At fxcm this happened to go as deep as 1.1980 as you can see in the price history. So at fxcm the eur/chf was under the ceiling for a while. But yahoo says daily low was 1.2004

This caused that Z5 closed two positions with high loss at prices 1.1990 and 1.1981 These are soft stops which means that fxcm reported those price to Zorro and Zorro decided to stop the positions.

I have sent an inquiry to fxcm the same day. Next morning (yesterdy) the eur/chf went high. Today I have got the following answer from fxcm:

"The rate which was reached on the EUR/CHF at this time was caused by the widening of the spread during the release of the USD Consumer Price Index report. These rates were confirmed to be a cause of a valid rate provided by multiple liquidity providers.

As a measure of good faith, FXCM has credited your account XXX EUR, crediting these positions to the rate of 1.2007.

To learn more about FXCM's execution policies, visit http://www.fxcm.co.uk/trading-execution-risks.jsp "

So my questions are:

- Can the widened spread really cause this? If yes, it is possible to avoid this in the strategy or by Zorro in general?

- Why give they money to me if this is normal behaviour of the system? Do you think this is a correct solution?

Hey Molloy

To me that sounds like really strange behavior by the broker. They have essentially said that the price you received was fair and correct, but then admitted some sort of wrongdoing and liability by crediting your account. That doesn't add up to me - either they've done something wrong or they haven't. They can't have it both ways! If I were you, I'd be asking for some sort of explanation.

One way to avoid spread widening affecting your trading is to avoid trading around times of reduced market liquidity, such as immediately prior to significant news releases.

From the manual, during live trading Zorro can access the broker's current spread using the built in 'Spread' variable. You could write a simple filter that prevents trading when the spread is wide. For example:

var mySpreadLimit = 20*PIP;
if (Spread <= mySpreadLimit)
{execute trade function}

If you take this approach, be aware that during simulation and training mode, Zorro takes the value for Spread from the AssetsFix.dta file (or whatever file you tell it to). This could lead to misleading results if trades are taken during simulation that wouldn't be taken during live trading. You'd need to make sure you accounted for such trades by adjusting your results accordingly.

Hope that helps.

The statement by the broker was partially correct: in their history the peak appeared on the bid price, not on the ask price. So it appears indeed as a peak of the spread.

But Zorro uses the ask price for trading, not the bid price. So a bid peak could not have affected trading. I suppose it was a peak of both prices, ask and bid, at real time. And this is probably why they refunded you the loss.

Many thanks to Molloy first, so obviously it looked like, I probably would not have seen it this way. But FXCM told me (on the phone) that they simply had an error in their system and that they will pay for the property damage. I'm just looking forward to this.
So, if there are any other FXCM users with EUR/CHF long trades being stopped on prices lower than 1,20 on 17/12/2014 now it is the right moment to get some money back.
@jcl: maybe this info is worth for a 'newsletter' at the Zorro users?

Thank you guys for the info!

Sphin, did something happened in the meantime? If yes, what is the rate to which they credited your closed positions?

Today I got the answer from FXCM that the trades will be adjusted to 1.20075, the same value that you got. And the text you quoted sounds also just like the one I received today.