Slippage in Forex
Price slippage in the forex market is called slippage. Simply put, slippage occurs if the trades do not activate in the exact number the trader has tried to apply the position due to high volatility and gaps. There is a very small time interval (less than one second) between sending the transaction request and executing the trade, and when the market fluctuations are high, the price changes even in this very small time interval, and this causes slippage.
For example, a trader checks the price chart of gold (XAUUSD) and decides to enter into a buy trade at the current market price of 1825.30, but because of the high volatility at the moment, his transaction activates at the 1825.50 price and with a 20 cents difference and higher. This occurrence is called Slippage.
In what kind of trades does slippage occur?
Slippage may occur in manual trading, conditional trading, and the take profit and stop loss, which we will discuss each of these cases further.
Slippage in manual trading (Market Execution)
The trades done manually may not activate at the points where the trader has made the transaction when the trading speed is very high, and the position is applied with a price difference. For example, a trader intends to sell the EURUSD currency pair at 1.12345, and as soon as he makes the sell trade, due to the high volatility of the market, the position activates with 2 pips of slip at 1.12325. Of course, you must note that manual trades in Trendo Broker are applied without slippage, even during large market fluctuations due to the high speed of trade execution.
Slippage in conditional trading or pending order
Other types of trades applied in contrast to manual trades with orders are called pending order trades. These types of trades are divided into the following two methods:
Read more:
Types of pending orders in the forex market
Conditional trades or pending orders are activated when the price reaches the desired number by the trader. When the price reaches the set order, if the price fluctuations are severe at that moment, slippage may occur. For example, a trader has placed his order in the gold symbol (XAUUSD) as a Buy Stop at $1,820. Gold is currently trading at 1819. Suddenly, the price starts to rise sharply, and gold quickly rejects the 1820 price. In such a situation, there is a possibility that the trade will activate at a higher number (for example, 1820.4), and slippage will occur. Since take profit and stop loss are conditional trades, there is a possibility that sometimes, the activation of these orders is also associated with slippage. Of course, it does not mean that the activation of take profit and stop loss is always associated with slippage, only in certain cases when the market suddenly starts to move, there is a possibility of slippage.
When does slippage occur more often?
Slippage often occurs due to the high trading volume or news events that cause severe fluctuations in the market. Also, sometimes slippage may occur in sessions where the trading volume is low, and there are abnormal fluctuations.
Slippage during Important economic news and data release time
At the time of important news releases such as interest rates and employment reports, the trading volume increases greatly due to the news's importance, and strong fluctuations occur in the market. Therefore, the probability of slippage in trades increases. For example, at 13:30 on Friday, the US employment report is published, and at the moment of the news release, the symbols related to the dollar experience strong fluctuations. We recommend not to trade in such conditions because the possibility of slippage in trades also increases in addition to the high risk.
Read More:
When are important forex news announced?
Slippage in weekend Gaps
The Forex market is closed on Saturdays and Sundays. Sometimes, important events such as a war outbreak occur during these two days, influencing the Forex market and making it open on Monday with a price gap. This price gap can cause slippage in conditional trades, and take profit and stop loss. For example, a trader has placed a buy-limit order for the gold symbol at the 1810 price, and the gold price closes at 1812 on Friday, and on Monday, the gold symbol will open with a price gap at 1805. In this situation, the trader's buy, which was at $1810, will be activated with $5 of spillage at the market starting price, which is 1805.
Read More:
Types of financial markets and their trading hours
Slippage in rapid price fluctuations
In addition to the fundamental reasons that can cause slippage by creating large fluctuations in the market, based on technical reasons, rapid fluctuations may happen in the market, and slippage may occur.
Is slippage always damaging to traders?
Even though many people think that slippage is always bad for traders, slippage can sometimes be good for traders. This event is divided into the following three cases:
Positive Slippage:
When the trade is opened or closed in the trader's favor, positive slippage occurs. Positive slippage occurs in pending orders of limit and take profits type.
Negative Slippage:
When the trade is opened or closed against the trader, negative slippage occurs. Negative slippage occurs in pending orders of stop and stop loss types.
Neutral Slippage:
When there is no price change in a trade's opening or closing process, the slippage is zero or neutral.
Summary
Slippage in the forex market is an important matter. The price slippage that occurs in trades is called slippage. Simply put, slippage occurs when the trade is not activated in the exact number the trader has tried to apply the position in due to high volatility and gaps. For financial market traders, it is necessary to be aware of this event and consider it in their risk management.
