Why Didn't I get my fills

Why Didn't I Get Filled?

"A treatise to Demo Traders”, on behalf of brokers everywhere.

Date: March 03, 2013

Demo Trading. Also known as simulated trading, paper trading, playing with Monopoly money; whatever you'd like to call it, a demo can be your best friend or your worst enemy. Every Futures broker dreads having this conversation with their clients, as it is necessary with every new trader; however, much to a broker’s chagrin, every new trader will say that they already understand when in fact they rarely do. Let me assure you, if you're a new or even intermediate trader, you probably don't. You may understand one popular issue of the conversation but odds are if you have been paper trading for five years waiting to be "successful" or to "understand the futures markets" in the simulated world before moving on, you have less of a chance of being successful in the live futures markets because you're setting yourself up for failure (if you ever do, in fact, trade in the live markets). You should seriously consider speaking with a licensed commodities and futures broker before diving in.

For the uninitiated, demo trading is the practice of trying out an online trading platform on a simulated basis—in a free demo trading account, you’re granted simulated funds, you’re placing simulated orders in the markets and you’re shown simulated profits and losses on what your trades might have done for you if you were futures trading on a live platform with live funds. First and foremost, it’s a wonderful technological tool for testing out a platform to see if it will suit your trading methodology. It can also be used to try different trading strategies, but problems arise when one equates simulated trading too much with live futures trading.

No matter how many houses you can afford to build on Pennsylvania Avenue with your simulated money and no matter how many railroads you've had to mortgage to pay the rent, the hypothetical results you've attained in your simulated trading do NOT, and never will, indicate future results in the live markets or any markets for that matter (thanks for reading through the board game references, I'll keep it to a minimum from now on). Between misplaced expectations, developing an inability to adapt and false expectations of profits that you've earned paper trading, you have set yourself up for an even more uphill-battle than you were originally up against.

To clarify before moving on any further in this post, I want to be very clear about a few things:

• I am not saying demo trading is absolutely wrong or is a poor move when used properly.
• When used correctly, demo trading is a good way to finally put your theories and hard work into action before taking the final leap and risking real capital in the live futures markets.
• I would never, EVER recommend trading for yourself electronically if you've never practiced trading on one of the many platform demos we offer; however, if you don't understand the important differences between paper trading and entering and exiting the markets with live orders and real money, you are doomed to fail and you will be left with a bitter taste in your mouth for an industry that gives you just as many opportunities to succeed as it does to fail.

The first issue many traders already know about is the false sense of security with your fills. The idea of a limit order is first in, first out. Take a moment. First in, first out. It's the golden rule of live trading, and it's a lesson you're never going to learn in simulated trading. Do not be "that trader" that is confused as to why it's taking so long to get filled once you start your live trading. It is not your platform, it is not your broker, it is not the data feed; it is the lack of fantasy fills you have been provided on a demo. And no, apologies to the automated trading strategists, but you're included in the conversation as well: you could be testing your strategies on market replays of historical data on our platforms and getting unrealistic fills.

In the simulated world, your limit orders are likely to get filled as soon as the market touches your price. For example: if you're trying to go long a contract on a buy limit order and your entry price becomes the bid, a simulated seller may instantaneously take the other side of your contract; however in a live market, you're going to have to get in line behind all the rest of the orders placed before yours waiting to be filled. In less liquid markets you may not notice as much of a difference as there may not be too many people in front of you; however, in more liquid markets such as the popular e-mini indices or the interest rates, you will notice quite a difference when the market keeps bumping against your price without filling your order. Only when the market passes THROUGH your price are you guaranteed a fill on a limit order in the live markets. This makes your hypothetical demo results much more difficult to interpret and sometimes impossible to trust.

Now on to the subtler and often misunderstood aspect of demo trading.

By solely trading on a demo platform for months and months on end, you can easily get used to this alternate trading reality making it extremely difficult to adapt to a live environment. You will never be able to simulate the emotions associated with gaining and losing money in the markets, and therefore you won't know how to contain said emotions until you experience them first hand. It's easy to accept your losses and move on when you're playing around with fake money, but you will start questioning every aspect of your trading by the time you hit the real markets and lose money for the first time.

It could take futures traders months or even years to finally understand that even though they might have made hundreds of thousands of dollars on a demo account, it can easily translate to losses in the real markets. The difficult part of it all is traders rarely blame themselves; as mentioned before, they can target the platform, brokerage firm or data feed, when in fact they might all be working and doing their jobs just fine. In any case, traders can set themselves up for unrealistic expectations for the markets and never see their visions come to fruition.

Beginning traders can leave the markets angry and frustrated when of course the markets provided plenty of opportunities on both sides of the market for risk and reward alike. Paper traders will consider themselves experts of the markets and in fact they may be able to recognize a head and shoulders pattern forming from a mile away, but when it comes to controlling losses or calling it a day after achieving respectable profits on their account, they just can't quit.

When it's all said and done, paper trading can be the ultimate crutch of live futures trading. For traders going back and forth between the two, they can gain a respectable balance of adjusting their trading strategy while still keeping in touch with the fill-reality of the live markets. If you’re going to base your trading success on how you’ve done in the simulated markets, though, you need to take a step back from the screen and have a serious conversation with a broker here before you dive in. While other brokers might get flustered and be unwilling to educate those who need it, our brokers are always happy to step in—that’s the Cannon Trading difference.

Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors.  You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.   
  

This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

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Every trader has done it. You've done it, your friends have done it, even your broker has done it at one point early in their career.

Here's the scenario:

You've finally finished your futures education at Cannon Trading Company. You've done you're homework on stops, limits, indicators and price movements for the market you're trading. You're ready to go, you enter your limit order and you wait.

**DING**

You get filled. Your heart rate picks up, a wry smile crosses your face and you begin to imagine the possibilities of the one trade you're in: How much can I make? How much can I lose before it's too much? You've waited through months of technical trading and deep meditation to get here, and now it's finally paying off with one of your first trades in the live market. Sayonara paper trading; aloha live futures.

Then, all of a sudden, the top of the hour hits and the market starts acting up. It's getting more volatile and more volatile; it's picking up speed and taking an unforgiving turn against you. You can't think straight, all you can think about is your losing position that could get worse and worse as the seconds go by. You race to put in a stop order, but you finally have to settle for a market order just to stop the bleeding. You stare.

**DING**

You're out of the market. What the hell just happened? You stare at the screen; did your indicators lie to you? Is your system faulty? Did you not listen to your broker? Well, probably not. But you're down several handles, you've lost some money and your pride is aching.

It was a regular morning, you even patiently waited out the first hour of trading to try and get a better idea of what the day might have in store for the markets; yet in that one minute at the top of the hour the market experienced a major reversal and you have no explanation. You're sitting there scratching your head, furious that you'd prepared for your trade for so long and lost so much in such a short time without any idea why.

You dial Cannon Trading to get an idea of what happened only to find your broker on the other end is just as confused as you are; however they're not perturbed by the market swing, only about your confusion and why you were in the markets at the time in the first place! You're directed to the daily announcements only to find everybody has been waiting all morning for a report to come out that would determine the day or even the next week of trading. And you missed it.

All that technical preparation, the months of practice and pep-talking yourself before you entered the trade, and you were foiled by an announcement that the rest of the trading world saw coming a week ago.

One of the single most frustrating mistakes you can make in the markets is not preparing yourself fundamentally for the announcements of the day ahead, and one of your first steps should be your trading calendar to make sure that doesn't happen. There are about 100 events listed on market announcement sites, and while not every one of them effects the markets as much as the last, it's important that you at least know what each one means.

Cannon Trading Company has taken care of the leg work for you here by polling its brokers (a staff including CTA's and brokers from the floor of Chicago with as much as 30 years experience) to find out which market events they consider to be the most important and what other lessons you need to understand when reviewing the events for the day. The list below is a group of events in order of impact to the markets according to the brokers of Cannon Trading, but there are a few things to keep in mind:

• The importance of all indicators change over time; it's the nature of the markets. When the housing sector was crashing in 2008, you can be sure the housing index numbers were of paramount importance and could actually determine the following week or two of trading while practically forcing a stall before their release in anticipation. A few months ago, the market hinged on scheduled votes from Congress that determined whether or not the US was going to default.
• This poll is no guarantee of market results or swings; in fact, sometimes strangely enough the numbers can pass through the markets undetected. Always take volume and open interest into consideration as they can help determine how much the market will be swayed by a release. Sometimes, even when far-from-consensus numbers are released for a report that people have been waiting on all week, they're a dud. That's just the way of the markets. This list was accomplished not to give you any set of laws, but to help educate you on what your brokers are thinking and what they consider to be market moving events.
• There are hundreds of potential events not listed here that can impact the market. The sample of events here were considered to be the market moving events with the most impact by brokers here; those events were then ranked by Cannon Trading brokers from 1-35. This in not a finished product because of the nature of the markets, and will change in the future. Check back for updates!

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BROKER NOTES:

It should be noted that this list was compiled based on the AVERAGE rankings by the senior brokers here in the office. Therefore, it should be noted that there are differences in opinion, ESPECIALLY on the position of the "Factory Orders" and "Philly Fed Survey", which some believed should be switched around. Feel free to comment, phone in or email us your questions or concerns. We're happy to get into a discussion about any of these events and how they affect the markets.

Source for definitions: Econoday