Wednesday, April 17, 2024

Slippage

Slippage Slippage occurs when the order execution price is different from the requested price.

The difference between the expected transaction price and the actual transaction price is “slippage”.

Slippage

Whenever your transaction price is different from the requested price, it is called slippage.

Slippage is not necessarily negative, as any difference between the expected execution price and the actual execution price is slippage.

Market prices can change rapidly, causing slippage during the delay between the processing of a trade order and the completion of .

Slippage occurs during periods of greater volatility, such as breaking news or economic data releases.

Under normal forex market conditions, major currency pairs are less prone to slippage because they are more liquid.

The major currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD and NZD/USD.

You can protect yourself from slippage by placing limit orders and avoiding market orders.

Slippage Types

Suppose you try to buy EUR/USD at 1.1050.

So on your trading platform you will see the price showing 1.1050 and click BUY.

So 1.1050 is the price at which you wish to execute your buy order.

Orders will be sent to the broker via your internet connection.

After receiving the order, the broker must check whether you have enough funds to cover the new order.

This means checking whether you have enough available margin after taking into account any other open positions.

From communication transmission to data processing, these steps will create delays.

This means that from the time the broker sends the original quote to the time the broker can fill the order, the live price may have changed.

The difference between the quote and the transaction price is called slippage.

The final execution price and the expected execution price will have one of the following three results: No slippage , Positive slippage , or Negative slippage .

No slipping

The order was submitted, the best available buy price offered was 1.1050 (exactly what you requested), and the order was subsequently filled at 1.1050.

Positive slippage

The order was submitted and the best available buy price offered suddenly changed to 1.1045 (5 pips lower than the price you requested), and the order was then placed at the better price 1.1045 Execute .

Negative Slippage

The order was submitted, the best available buy price offered suddenly changed to 1.1057 (7 pips higher than the price you requested), and the order was subsequently filled at 1.1057 .

What causes slippage?

How does slippage occur and why does your order fail to fill at the requested price?

The

market consists of buyers and sellers.

For every buyer who wants to buy at a specific price and a specific quantity, there must be an equal number of sellers who want to sell at the same specific price and with the same quality.

If not, there is an imbalance between buyers and sellers.

This is what causes price fluctuations and ups and downs.

For example, if you want to buy EUR/USD at 1.1050, but not enough people are willing to sell EUR at 1.1050, your order will need to find the next best available price.

The price must be higher (because there were no sellers at 1.1050), which is what causes negative slippage. Let’s say your order is filled at 1.1053. You experience negative slippage of 3 points.

On the other hand, if there are a lot of people willing to sell Euros, your order may find sellers willing to sell for less than 1.1050, for example 1.1048.

If your order is filled, you can buy EUR/USD 2 pips cheaper than you wanted. This is positive slippage.

Stop loss orders may experience slippage! This means that even if you enter a stop-loss order in the form of a pending order in the trading platform, if the market moves too fast, your order may not be filled.

For example, you buy EUR/USD at 1.1050 and place a stop loss order at 1.1030. Suddenly, aliens attack Europe and EUR/USD plummets. Your stop is hit, but you see your fill was at 1.0930!

You experienced 100 pips of negative slippage! 馃槺

Why is slippage important?

Slippage is important because you may end up receiving an unfair execution price.

Brokers can make risk-free profits from you.

For example, let鈥檚 say you want to trade GBP/USD.

Your broker quotes you 1.3085 (bid) and 1.3090 (ask).

When you send a market order, you expect to buy at the ask price of 1.3090.

Due to delays in order processing, let’s say the market has dropped to 1.3080.

Brokers can now fill orders at 1.3080…

But you asked to buy at 1.3090.

So the broker buys GBP/USD at 1.3080 and sells it to you at 1.3090, making a risk-free profit of 10 pips on your order!

As a trader, you have no idea that the price has changed. You will only see your buy order executed at 1.3090, which is the price at which the order was placed.

Requote

Instead of filling orders at different prices, some brokers do what is called Requote.

This is a situation when a broker is unable or unwilling to fill an order at the price you requested, so it sets an execution delay and returns the request with a different quote, usually to your detriment.

If the market movement reaches a certain limit, the broker will send you a new price. This is a “quote“.

You can then choose to trade at the new price.

Of course, there is no guarantee that new orders will be completed. You may receive another requote.

This often happens if markets are changing rapidly, such as during important economic data releases or central bank press conferences.

When your broker receives the order, the market is moving too fast to execute at the price shown.

Requote notifications will appear on your trading platform to let you know that the price has changed and give you the option to accept that price.

Most of the time, requotes usually happen on very large trades.

If your broker is unable to execute your order immediately, even if only a few seconds have passed, significant price changes may occur.

Requotes can be frustrating, but they simply reflect the reality of rapidly changing prices.

That being said, if requotes occur in quiet markets or you encounter them frequently, it may be time to switch brokers.

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

Read more

Local News