In the Forex market, rates can change at a rapid pace during critical news events, conferences and economic releases. Traders may face high volatility and slippage during these times. Slippage is a common thing to experience, and occurs when an order is executed at a different rate compared to the expected rate. For example, if you place a buy order for EUR/USD at 1.1207 and it was executed at 1.1205, then there is a slippage of 2 pips.
Why does slippage occur?
Slippage can occur for several reasons such as high volatility, crucial economic events, imbalance of buyers and sellers, trading volumes and a delay between trades being placed and when they are executed. Slippage occurs whenever orders are not filled at the expected rates, they are adjusted to be executed at the next best possible rate.
Many traders may consider slippages in a negative light, however slippage is a common phenomenon and it ensures that you are trading in a real market environment.
In a true sense, for every seller with a certain rate and trade volume there must be matching buyers. When there is a disproportion of buyers and sellers, it causes slippage. Titan FX is a ECN/STP broker that provides market execution within the interbank market, and when there is not adequate liquidity at the exchange rate requested to fill your order, it will be filled at the next available rate.
Are slippages always against the trader?
The short answer is no. Slippages can have both positive and negative impacts.
Positive slippage – if you placed a buy order for EUR/USD at 1.1180 but it was filled at 1.1178 then a slippage of 2 pips occurred. The rate at which the order was executed was below your desired rate however, since you bought at a lower rate you have increase your chances of making a profit by 2 more pips.
Negative slippage – for example, if you already had an open buy trade of EUR/USD at 1.1210 with a stop loss at 1.1158 and the market fell sharply however, your stop loss was triggered at 1.1156 instead of 1.1158 then a loss of 2 extra pips has occurred due to the slippage.
Entry and exit slippages
There can be slippages on both entries and exists into the market. Slippages on entry occur on orders such as buy limit, sell limit, buy stop and sell stop. When you already have an open trade and slippage occurs for stop loss or take profit points, it is considered as slippages on exists.
The volatility of the forex market can be very high at times. Trading volume in foreign exchange markets averages over $5.2 trillion per day. Because of this, slippages should be treated with a sense that you are engaging with a highly competent, impartial and translucent marketplace.