Slippage in Forex - Everything You need to Know

Updated May 08 2022

Slippage in Forex - Everything You need to Know

Slippage in forex is when a trader receives a different price than the one he used to submit his order when trading currency pairs. The main causes of slippage are lack of liquidity or highly volatile trading scenarios. 

Slippage in Forex

Every time you send an order to your broker, there is a whole array of things happening in the background. The broker needs to receive the order, verify if you have enough funds to open the order, and then place the order on the market.

While this sounds like a rather straightforward process, trading is the game of milliseconds and prices can change during that time – especially if the markets are volatile.

Slippage Explained

Slippage is the situation when the execution price changes between the time you input the order and the time the broker processes it. For swing traders or position traders who work over larger time frames, small slippage can be a mere inconvenience. However, for traders who trade high-frequency strategies (scalping), slippage can be the difference between profiting or losing.

Every trade has 3 types of slippage:

Right now you’re probably thinking about positive slippage, and yes, it’s a thing. Sometimes you can end up getting a better price than the one you submitted in your order.

Going back to our explanation, slippage occurs when there is no availability in the order book of exchange to fill a trading order at the particular requested price, hence, the importance of using the right trading orders if slippage can be important for you. Here are the most common:

Example of Forex Slippage

You've been observing the EUR / USD, looking for an opportunity to buy because you believe that the US dollar declines in the short term.

You decide to enter the buy position at 1.13450, during the time when there is no scheduled news. Yet, at that moment, the President of the United States sends out a Tweet that causes significant volatility on the market.

In this scenario there are 3 possible options:

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Conclusion

Slippage belongs amongst the trading risks, and it will always be a part of trading. Yet, while you cannot completely avoid this risk, you can cultivate habits that minimize it.

Selection, timing, and order types are some of the techniques that might help, but the first step should be to ensure that you trade with the quality broker that will do its best to execute your trades as fast and as accurately as possible.

 

Frequently Asked Questions

Does slippage make you lose money?

Slippage can work both ways. When you get a worse price than expected it is negative slippage and you will enter a position at a worse place than anticipated. But, sometimes you can get a better price than expected which is positive slippage.

Is slippage the same as a spread?

No, the spread is the difference between the bid (the best current buying price) and the ask (the best current selling price), while the slippage is the difference between the price at the moment of the order execution and the price at which the order is executed.

Author

Stjepan Kalinic

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