Forex slippage occurs when price exceeds a stop or limit order or even a market order.
Traders may witness slippage during key news releases or off-market hours. Slippage may also appear during periods of extremely high or low volatility both in equity and Forex markets. The occurrence of slippage may bring pressure and headaches to traders.
Slippage Definition
Slippage can be defined as the difference between the expected price and the actual executed price. If you’re into stock markets, the dreaded slippage generally occurs during market gaps.
Slippage may be your ally when your target price is executed at a better price than the one intended as it provides you a couple of extra pips. But of course, that’s not always the case.
In the realm of Forex, slippage can happen both due to gaps or large – most of the time institutional – orders which tend to move by 10-30 pips. It has complete orders in between being done at a new or the best available price. Aside from that, traders can also see slippage during major breakout price levels and if a specific currency has been in consolidation for an extended period.
Types of Forex Slippage
Slippage can be classified into positive and negative slippage.
Let’s say that you’ve placed an order to trade 1.3550.
Positive slippage can take place when your buy trade is executed at 1.3540 (giving you an additional 10 pips in your pocket).
Negative slippage can happen when your buy trade is executed at 1.3560 (taking away 10 pips from your intended entry price level).
Can Forex Slippage be Avoided?
No. No one can escape slippage in Forex trading. You will undoubtedly experience this unwanted occurrence at some point in your career.
Busting a typical myth, Forex slippage isn’t a ‘signal’ that your broker is playing tricks on you (but take note that it’s possible with market maker brokers). You should understand the market conditions under which spillage occurs.
Slippage is normal during important news releases such as the US NFP data or central bank interest rate changes. Thus, you can see price swings and volatility as part of the trade.
Make sure your trades are triggered either before or a few minutes after a news release. This measure can lessen the impact of slippage.
