Spread alone doesn't say how much can be traded. Two quotes can show the same 0.3 pip spread and offer completely different experiences.
In the first case, the book has deep size at each level. A market order of several lots moves the price by a fraction of a pip. In the second, the best bid and offer have tiny size, and a modest order walks through several levels.
Retail platforms rarely show this difference. The quote window shows the best bid and ask, and nothing else. Only the fills reveal how thin the book was, and by then the damage is done.
An example: a scalper trades 1 lot in EURUSD at 3am London time. The spread is 0.4 and looks perfectly acceptable. The fill is 0.8 pips from the click price, because the first level was only worth a few hundred thousand.
A scalper trading the same size at 9am London sees the same spread and a fill at the quoted price.
Spread without depth is half of the information. The way to measure depth indirectly is to compare fill prices for different order sizes at the same time of day. The slope tells everything.
One way to measure depth indirectly is to send market orders of increasing size, in a quiet and a busy hour, and plot the slippage against the size. The slope shows how fast the book thins. Doing this with micro lots costs very little and gives a picture that no spread figure can provide.
It also shows where the size limit lies for a particular strategy, beyond which fills start to erode the edge.
Does fill quality worsen sharply when size is increased on your account, and at what size?
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Wide but deep, narrow but empty
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Amanhasnoname
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Re: Wide but deep, narrow but empty
I noticed this on my own account when I started scaling up from about half a lot to two lots on EURUSD. At ten in the morning London time I couldn't see any difference in fills between the sizes. In the late New York session and early Asia, the two lot fills were regularly a few tenths of a pip worse, even though the quoted spread looked exactly the same.
I did a version of your test over a few weeks, using micro lots up to one lot, then a handful of larger orders at different hours, and just wrote down the slippage against the click price. The slope was almost flat during London and New York, and quite steep after about nine in the evening, my time. GBPJPY was much worse than EURUSD at every hour.
The practical result is that I now cap my size by time of day rather than having one size for everything. Outside the main sessions I trade a third of my normal size, which keeps the fills close to the quote and stops the costs quietly eating the edge.
I did a version of your test over a few weeks, using micro lots up to one lot, then a handful of larger orders at different hours, and just wrote down the slippage against the click price. The slope was almost flat during London and New York, and quite steep after about nine in the evening, my time. GBPJPY was much worse than EURUSD at every hour.
The practical result is that I now cap my size by time of day rather than having one size for everything. Outside the main sessions I trade a third of my normal size, which keeps the fills close to the quote and stops the costs quietly eating the edge.