Slippage in Forex Trading – Understand it Clearly to Manage It Effectively

The Forex and cryptocurrency markets are constantly changing, which presents traders with many challenges. But the most significant challenge isn’t price volatility—it’s “Slippage”—the phenomenon where the actual trade execution price differs from the expected price.

What Is Slippage and How Does It Happen?

Slippage refers to the gap between the price a trader expects and the actual market price. When you place a buy or sell order, prices can change in the blink of an eye, and this is called Slippage.

For example, in Forex trading, you want to buy at 1.3650, but due to rapid price movements, your order gets filled at a different price, such as 1.3640 (positive slippage—better price) or 1.3660 (negative slippage—worse price). It depends on market movement at that moment.

Slippage often occurs during high volatility situations, such as economic news releases or when trading volume increases. There’s also “Requote,” which happens when the original price is no longer available, and you need to confirm a new price.

Is Slippage Good or Bad? Its Impact on Trading

Many traders see slippage as harmful, but that’s not always the case. Slippage is a natural phenomenon in markets that are genuinely moving. Especially with ECN accounts connected to interbank levels, slippage occurs regularly.

The key is understanding that slippage isn’t necessarily a broker’s bad tool. If slippage happens constantly or is unusually large (more than 10 times out of 100 trades), it might be a sign to consider switching brokers. But if it occurs normally, view it as part of the normal trading risk. Even high-quality ECN accounts face this issue.

7 Effective Ways to Manage Slippage

While slippage can’t be completely avoided, it can be significantly reduced.

Method 1: Choose a Reliable and Regulated Broker

Before trading, find a broker regulated by international authorities like ASIC, FCA, CIMA, or FSC. Regulated brokers tend to offer better services and more consistent slippage. For example, Mitrade is regulated by multiple agencies and has good liquidity.

Method 2: Maintain a Stable Internet Connection

Slow or unstable internet is a major cause of large slippage. Use a wired connection instead of Wi-Fi during trading. Close other internet-heavy applications like Skype or YouTube. Scalpers should pay special attention to this.

Method 3: Set a Maximum Slippage in Your Trading Platform

Most trading platforms allow you to set a maximum slippage. Configure this to prevent your orders from filling at prices that are too unfavorable. If the price deviates beyond your set limit, the order won’t execute.

Method 4: Use Limit Orders Instead of Market Orders

Limit orders let you specify the exact price for buying or selling. Although they might not fill immediately, when they do, the price will be close to your target, reducing slippage risk—especially if your account has interbank access.

Method 5: Switch to Higher Timeframes

Slippage is often a bigger problem for traders using minute charts. Switching to daily or higher timeframes can significantly reduce the impact of slippage.

Method 6: Avoid Trading During Major News Announcements

Economic news releases often cause significant slippage. Avoid trading in the 30-40 minutes before a news release. Wait until 30 minutes after the news to let the market settle.

Method 7: Use News Volatility as an Advantage

If you want to trade during volatile periods, consider slippage as part of your profit potential. For example, if your average profit is 45 pips but slippage is 15 pips, your net profit is 30 pips. Choose news events with volatility over 50 pips to prevent slippage from eating into your profits.

Choosing the Right Tools and Currencies to Minimize Slippage

In normal market conditions, highly liquid currencies like EUR/USD and USD/JPY tend to experience less slippage. However, during major news releases, even these major pairs can encounter slippage.

Summary

Slippage is a natural occurrence in the Forex and financial markets. It can’t be entirely avoided but can be managed and minimized by selecting a good broker, maintaining a stable internet connection, setting maximum slippage limits, using limit orders, and choosing appropriate timeframes. Proper understanding of slippage will help you trade more effectively.