What is Slippage in Forex Trading?
Quick Answer: Slippage is the difference between your expected execution price and actual fill price. It occurs during high volatility, low liquidity, or news events when prices move faster than orders can be filled. Slippage can work for or against you.
What is Slippage in Forex Trading?
Slippage is the difference between the price you expected to execute a trade at and the actual price you received. It occurs when market conditions cause your order to fill at a worse price than anticipated. While slippage can occasionally work in your favor (positive slippage), it typically results in a less favorable entry or exit price, directly impacting your profitability.
What Causes Slippage
Several market conditions increase slippage risk:
- Low liquidity: Fewer buyers/sellers means larger gaps between available prices
- High volatility: Rapid price movement during news releases or market shocks
- Large orders: Position sizes that exceed available liquidity at a single price
- Market gaps: Price jumps between Friday close and Sunday open
- Execution delays: Slow internet, broker latency, or requotes
The Slippage Reality
You place a market order to buy EUR/USD at 1.1000. By the time your order reaches the broker and they find a matching seller, the price has jumped to 1.1003. You experience 3 pips of negative slippage ($30 loss on a standard lot). This happens instantly - in milliseconds. During an NFP report release, prices can move 50-100 pips in seconds. Your stop loss at 1.0950 might execute at 1.0930 (20 pips worse), turning a planned $50 loss into a $250 loss.
How to Minimize Slippage
Professional traders use these tactics:
- Limit orders: Specify your maximum entry price, guaranteeing no worse execution
- Trade liquid pairs: Major pairs like EUR/USD have tighter spreads and deeper liquidity
- Avoid news releases: Don't trade 15 minutes before/after high-impact events
- Use ECN brokers: Direct market access typically offers faster execution
- Check execution statistics: Track your broker's average slippage per trade
Accept that some slippage is unavoidable in forex. Factor 1-2 pips of expected slippage into your trade calculations. If your strategy relies on capturing 5-10 pip moves, slippage can devastate your edge. Build margin for error in your risk/reward ratios.
Related Terms
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