Bid-Ask

[Eugene]

Just wanted to clarify, if AB treats supplied price data as BID.

With the expected consequence of then using existing prices on stop/target sells, but using calculated 'price+spread' Asks to TRIGGER stop/target buys.

thank you.

[Mike Bryant]

Bid/ask behavior is discussed in detail in the user’s guide:

 

Bid/Ask Spread
The bid/ask spread is the difference between the current price buyers are willing to purchase the instrument for and the price sellers are willing to sell it for. The bid is the lower price, whereas the ask is the higher price. Buy orders are always filled at the ask, and sell orders are always filled at the bid. A price chart displays the bid price only. In Builder, the bid/ask spread is only used if the Order Fill Rule option on the Evaluation menu ("Use Bid/Ask spread to determine fills") is checked. If so, market buy orders will be filled above the apparent market price (based on the chart), whereas market sell orders will be filled at the price seen on the chart. The bid/ask spread is part of the cost of the trade.
 
The bid/ask spread is intended for forex trading and is not typically used for trading futures. When developing forex strategies for MetaTrader 4, this option should be used because MetaTrader 4 uses the bid/ask spread when evaluating strategies. This is consistent with the common practice in forex trading of paying for the trade through the spread rather than paying the broker a fixed commission.
 
If the bid/ask option is selected, Builder also uses the bid/ask spread to determine if a pending order is filled. For example, a buy stop order is only filled if the ask price, which is above the chart price (bid), touches the stop price. If, for example, the price bar on the chart just touches the stop price, it may appear that the order should be filled, but Builder won't show the historical trade as filled unless the ask price reached the buy stop price. Similarly, a buy limit order will not be recorded as filled unless the ask price reaches down to the buy limit price. Sell stops and limits are filled at the bid, so, unlike buy orders, their fill prices directly correspond to the chart prices. This is also how MetaTrader 4 determines fills.
 
Note: In addition to the bid/ask spread, MetaTrader 4 applies a minimum price distance to determine if an order can be placed. If a pending order (stop or limit) is too close to the market at the time it's placed, the order will be rejected. This is based on the idea that there won't be sufficient time to place the order before the market moves through the order price. Builder doesn't reject such orders, which can sometimes cause a discrepancy in back-testing between Builder and MetaTrader 4.

 

Mike Bryant

Adaptrade Software

[Zheka A.]

I have read the manual, just wanted to reconfirm.

This sentence is confusing though:

If, for example, the price bar on the chart just touches the stop price, it may appear that the order should be filled, but Builder won't show the historical trade as filled unless the ask price reached the buy stop price.

IF Bid (=chart/price file price) touched the buy stop price, then Ask definitely had done so. And Builder should trigger a trade. 

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[Mike Bryant]

The ask is the higher price, so it wouldn’t be filled in that case.

 

Mike Bryant

Adaptrade Software

[Alex Begin]

Why isn’t the bid-ask spread typically used for futures? They have a spread, too.

[Mike Bryant]

You can use it with futures if you want to, but for futures, the convention is to use slippage, rather than a bid/ask spread, when accounting for the spread. For forex, the bid/ask spread is often the cost of the trade, so it’s more important in that context.

 

Mike Bryant

Adaptrade Software

[Zheka A.]

???

If the lower price - bid - reached the BUY stop price (from below), then the higher - ask - had definitely penetrated that level. And the trade will trigger.

Where's the catch?

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[Mike Bryant]

The point I was trying to make in the user’s guide is that if you select the bid/ask fill option, then for orders that are filled at the ask, such as buy stops, the fill price on the chart may not be shown where you expect since the chart only shows the bids. However, it appears that the sentence in the user’s guide appears to state it backwards since, as you note, a buy stop would be filled in that case.

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