Last-Look Execution
Definition
Last-look execution is a practice where the liquidity provider (or broker) has a brief window (typically 50-200ms) to reject an order after seeing it, even if the price quoted was honoured at submission. Last-look creates information asymmetry favouring the broker and is controversial — it allows brokers to reject orders that would be unprofitable for them.
In-depth: Last-Look Execution
Last-look execution evolved in OTC forex markets where liquidity providers (banks, prime brokers) needed protection against latency-arbitrage attacks. The practice grants the LP a brief window to either fill or reject an order after submission. The defenders argue it protects against toxic flow; critics argue it creates information asymmetry that lets LPs cherry-pick profitable orders and reject unprofitable ones.
Mechanics: 1. Trader submits order to LP via prime broker or aggregator 2. LP receives order with timestamp; system displays current LP-internal best bid/ask 3. LP has typically 50-200ms 'last look' window to decide: fill at quoted price, reject the order, or in some cases reprice (similar to requote) 4. If filled, the trader gets the original quoted price; if rejected, the trader receives a 'rejected' status and must resubmit at the new market price (which is likely worse for the trader's intended direction since price has moved during the last-look window — the LP rejects precisely when the move is against the LP's interests, meaning the market moved in the trader's favour but the LP withheld the fill)
Impact on retail trading: - Retail traders rarely interact with last-look directly; the practice is more relevant to institutional flow - Retail STP/ECN brokers either pass orders through to LPs (inheriting LP last-look behaviour) or aggregate liquidity to mitigate last-look impact - Some retail dealing-desk brokers implement their own version of last-look (or its functional equivalent — discretionary fills)
Detection: high reject rate combined with directionally-skewed reject pattern (rejects clustered when market is about to move in the trader's favour) suggests last-look behaviour. Hard to prove from outside without LP transparency.
Regulatory response: the FX Global Code (2017, updated 2021) addresses last-look practices, requiring participants to disclose their last-look policies and prohibits using the last-look window for 'pre-hedging' (where the LP front-runs the order during the look window). Adoption is voluntary and enforcement is limited.
For retail algo traders: choose brokers that explicitly disclose 'no last-look' or 'NDD (no dealing desk)' execution. ECN brokers like IC Markets, Pepperstone, FXOpen typically claim no last-look. Dealing-desk brokers may have last-look-equivalent practices regardless of marketing claims.