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Understanding the slippage
Source: | Author:finance-102 | Date2023-01-23 | 149 Views | Share:
Slippage is the difference between the expected price of a trade and the price at which the trade is executed. In the forex market, slippage can occur when a trader places a market order, which is an order to buy or sell at the current market price, and the market price moves before the order can be filled. This can result in the trader receiving a different price than the one they expected, which can lead to a loss on the trade.

Slippage is the difference between the expected price of a trade and the price at which the trade is executed. In the forex market, slippage can occur when a trader places a market order, which is an order to buy or sell at the current market price, and the market price moves before the order can be filled. This can result in the trader receiving a different price than the one they expected, which can lead to a loss on the trade.


There are several causes of slippage in trading, including:


Market volatility: When the market is highly volatile, prices can move quickly and unpredictably, making it difficult to execute trades at the desired price.

Low liquidity: Low liquidity in a market can also cause slippage, as there may not be enough buyers or sellers to match the trade at the desired price.

News and events: Economic news and events can also cause slippage, as traders may rapidly adjust their positions in anticipation of or response to the news.

Broker execution: Slippage may also occur due to the way a broker executes a trade. It can happen if a broker is slow to fill an order or if they fill it at a less favorable price than the trader intended.

Algo trading: Slippage can occur in the context of algo trading as well, if the algorithm is not able to react fast enough to market conditions or if the trading strategy is not well designed.

High leverage: Slippage can be more pronounced when traders use high leverage as small price movements can have a significant impact on their account balance.


Overall, slippage is a normal part of trading, forex traders dread slippage because it can result in unexpected losses and can make it difficult to accurately predict the potential returns on a trade. Additionally, slippage can be especially detrimental for traders using the following ways:


Use limit orders: Instead of using market orders, which are executed at the current market price, use limit orders. A limit order allows you to set a specific price at which you want to buy or sell, which can help prevent slippage.

Monitor market conditions: Keep an eye on market conditions, such as volatility and liquidity, and adjust your trading strategy accordingly. Avoid trading during high-volatility periods or when there is low liquidity in the market.

Choose a reliable broker: Make sure to choose a reliable broker with a good reputation for execution quality. Look for brokers that have a good track record of filling orders quickly and at the desired price.

Algo trading: Algo trading can help reduce slippage by automating the trade execution process and minimizing human errors. However, it is important to make sure that the trading strategy is well-designed and can react fast to market conditions.

Reduce leverage: Reducing leverage can also help reduce slippage as it reduces the impact of small price movements on your account balance.

Size your trade: Be mindful of the size of your trade in relation to the average daily trading volume of the security. If you are placing a large trade in a thinly traded market, it's more likely to experience slippage.


By following these strategies, traders can reduce the chances of experiencing slippage and increase the chances of executing their trades at the desired price.