You may have heard the term ‘last look’ being mentioned by traders and been confused as to what is meant by this term. Last Look simply refers to the ability that liquidity providers have to reject an order even when the order matches the liquidity provider quoted price. Essentially, the liquidity gets one last chance or look to decide whether they want to take the other side of an order.
The fact that liquidity providers can give traders orders a last look before accepting the order is something that frustrates many traders, as it can often result in a certain amount of slippage. As the order will then be executed at the next best price. If your order is rejected by a number of different liquidity providers you may experience a significant amount of slippage.
Why Does Last Look Exist?
This ability to give orders a last look before accepting is vitally important for liquidity providers. Spot Forex is relatively unique in the fact there is no centralised exchange where orders are processed but are rather placed through an array of brokerages, prime brokerages, liquidity aggregators and interbank platforms. This means when a Tier 1 liquidity provider quotes a price this is distributed to all aforementioned trading venues. If the liquidity provider did not have the opportunity to give orders a last look, they could end up offering much more liquidity at particular price than they originally intended too. Last look gives liquidity providers the ability to have their quotes distributed across a number of different trading venues, allowing a wider range of institutions access to Tier 1 liquidity.
Pro’s and Cons of Last Look
- Tighter Spreads. The fact liquidity providers are able to reject orders means that they are able to quote tighter spreads, as they know they can reject the order should the need too.
- Greater Liquidity. A greater number of liquidity providers will quote last look prices, as they don’t wish to expose themselves to potentially toxic order flows.
- Non-Executable Quotes. Not all quotes that appear on a traders screens will be executable, with liquidity providers rejecting traders orders etc.
- Slippage. As previously mentioned not all orders will be executed at quoted prices, leading to slippage occasions.
- Execution Speed. As orders may be rejected by liquidity providers, it may take longer for orders to be executed.
No Last Look Brokerages
Few, if any retail Forex brokerages or commercial currency transfer firm can boast a ‘no last look’ price feed, as it is not in liquidity providers interests to accept orders without giving them a last look. The only time when you can genuinely experience ‘no last look’ execution is when trading with other traders on Electronic Communication Network (ECN). But even when trading on an ECN, some of your orders will be subject to ‘last look’ with ECN/STP brokerages relying on liquidity providers at least some of the time. ECN/STP brokerages often heavily rely on outside liquidity providers during news releases or periods of significant market volatility, when the vast majority of retail traders are betting on the market to move in one direction.
Some ECN/MTF’s do offer no last look execution on certain types of order. For instance, well known FCA regulated LMAX Exchange offers traders ‘no last look’ execution on ‘Streaming limit orders’ which are provided by those who are members of the MTF. Despite, this it’s not always possible to receive no last look execution and it is something which will occur with any brokerage which makes use of liquidity outside their ECN.