Ever heard of slippage? Need more info? Or maybe ways to avoid it? Here’s all you need to about slippage in trading. For starters, slippage occurs when their order is filled at a price different than what they requested. For instance, if you’re set on buying EUR/USD at 1.3040 and your order gets filled at 1.3030, then the 10 pips difference is called slippage. So essentially, slippage is the difference between request price and fill price.
Any disparity between the quoted price and fill price can be counted as slippage; it doesn’t necessarily have to be a negative or positive effect. Every time you place a market order, there is a time-lapse between when it is placed and when it is filled. And by the time your order is confirmed the live price might have changed for better or worse.
This difference in price change can lead to three possible outcomes: no slippage, positive slippage, and negative slippage. When the order is placed at the same price as we requested there is no slippage. In positive slippage, the order is filled at a price better than we quoted. Whereas, when the order is filled at a price worse than your requested price then it is negative slippage. So if you place an order to buy at 1.5706 and the order gets filled at 1.5706 then it’s a no slippage outcome, at a better price of 1.5702 is a positive outcome, and at an above price of 1.5709 is a negative outcome.
So why does slippage occur? The forex market, like any market, is made up of buyers and sellers. If you want to buy a precise amount of currency pair at a specific price and time, then there must be someone at the other end willing to sell it at the price you quote. When there is an inflow of traders and the liquidity is high in the forex market, then there is a lesser chance of slippage occurring. Hence, major forex pairs with high liquidity are less prone to slippage. Another major reason for slippage is market volatility. When there is a major event or announcement then the currency price changes rapidly causing slippage.
One way to avoid slippage is to opt for limit orders instead of market orders when trading. Unlike a market order, a limit order only gets filled at the price you requested or better. Or you can avoid slippage altogether by opting for brokers like Trust Capital TC who provide direct market access without any dealer intervention.
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