Last Look is a term that has become synonymous with unfair trading practices in Forex. Last Look basically means that the Bank or LP has the option to reject a trade for any reason that would result in slippage. A bank could reject a trade and the order would then fall to the next best available price. Recently Banks have been penalized for abuses with this practice. One example was Barclays that was investigated by the SEC and sanctioned for these abuses.
LMAX Prohibits Last Look
The LMAX exchange which does not allow last look on their platform has been leading the crusade against the practice. Last look was used and accepted as a practice when a broker has only one source of liquidity. Last look was a way to prevent abuses of set trading parameters that are in place to protect the single LP. The Forex Market has evolved and very few Forex Brokers these days have a single liquidity relationship. Critics of last look feel that in a multi-bank environment the practice is unnecessary and outdated.
Could Regulators Ban Last Look
Will regulators now look to ban last look as a practice? When abuses have occurred and there is a question of confidence regulators usually step in and try to legislate. There are some that argue that a complete ban might result in a dramatic drop in liquidity. This comes down to a question of balancing the needs for risk management and the best interests of the trading public.
More Transparency in Forex Without Last Look
Hopefully, the result will be greater transparency on the part of trading system providers. Market forces should move these providers in a direction that balances out the needs of Liquidity Providers and traders. Instituting trade execution standards would also be a great benefit and give the needed confidence in the marketplace.
Trading Forex and Derivatives carries a high level of risk, including the risk of losing substantially more than your initial investment. Also, you do not own or have any rights to the underlying assets. The effect of leverage is that both gains and losses are magnified. You should only trade if you can afford to carry these risks. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary