Almost every trader have experienced order slippage, whether they are trading stocks, forex or futures. Slippage is when traders get a different price than what they have expected on an entry or exit from a trade.
Usually, a slippage happens when a trader uses a market order. The price usually changes in the fraction of a second when the order about to reach or get delayed.
To reduce the possibility of getting order slippage to try these strategies.
Avoid using market orders
Slippage happens when a trader uses a market order. To help reduces the slippage, traders usually use limit orders.
A limit order only fills at the price you want, or better. Different from a market order, it will not fill at the worse price.
What to use to enter the trade?
Traders usually use limit orders and stop-limit orders to enter a position. These trade help traders to not trade when they cannot get the price they wanted.
That benefit, however, does not come with no costs. Using limit orders and stop-limit orders will make traders miss lucrative opportunities.
What to use to exit the trade?
Once you are in a trade, then he has lesser control than he had before entered the trade. So, to quickly exit the trade, a trader may need to use a market order.
Traders still have the chance to use limit orders, but, only when the trade is moving favorably.
For instance, a trader buys shares at $49.40 and places a limit order to sell those shares at $49.80. Then, the order only sells the shares if someone is willing to give the trader $49.80.
There is no possibility of slippage here. The seller gets $49.80 (or above).
When the biggest slippage occurs?
The biggest slippage happens around major news events. Thus. As a trader, avoid having trades during major scheduled news events, like FOMC announcements or during a company’s earnings announcement.
Annually check the economic calendar and earnings calendar. Then, you have to also avoid trading several minutes before or after that big event.
