How to Effectively Cope With Forex Order Slippage?
by Arnab Dey Finance Published on: 21 February 2022 Last Updated on: 07 November 2024
When you are a beginner in the forex market, you might not know several technical terms related to the trade. One such term is slippage, and when you are using demo accounts to understand the market, you don’t have to deal with such a term. It is essential to plan your market moves professionally to cut losses from trade.
One significant way of conducting the business is to subscribe to a reputed economic news calendar. Such a move will help you receive important updates about the significant upcoming economic events.
Once you have a better idea about the news events that could impact the market, you can make your market moves according to the economic calendar. The article analyses the crucial steps to cope with forex order slippage effectively.
Slippage Order
You think it would be executed right away for the quoted price when you place a market order. However, it won’t be the case as a few pips would differ in your final order. It is the slippage in forex orders.
If you want to buy Euro/US dollar at 1.1035, you might not get the order placed for the exact price. You might call it for 1.1037, indicating a slippage of two pips. You will experience the same when you try to limit or stop orders related to a future price order.
Slippage Reasons
Slippage occurs due to various reasons. The forex price feeds come from multiple sources, and technology provides the price. There could be variations from feed to feed, affecting price movements. So, an identical price movement across exchanges is not possible in forex trading, resulting in slippage.
Slippages could happen when there is a lack of liquidity for a particular position. If you want to book a stop order at 1.1235 for Euro/Dollar and the current price is 1.1230, the next tick available could be 1.1240, hurting your stop order chances.
The 10-point difference effectively results in a five-point slippage in pips for you. When buying a significant position, the price could be different for orders.
If you are looking to buy 15 contracts of Euro/Dollar, there is a possibility that the exchange could offer you ten lots only right away. You can get the remaining five for a different price. Another chance of slippage occurs during the middle of the night. It is when banks make the calculations on the trading for the day.
Besides, some brokers can also involve in the malpractice of manipulating the prices. Traders need to do business with only regulated brokers to avoid the possibility of such malpractices.
Avoiding Slippage
As a trader, you should be ready to accept the price differences while executing an order. You might not receive the exact price you have been targeting from a trade.
There would be slight slippages in points, and you have to count that as well while placing your order. Slippages hurt your chances of making a profit, especially when dealing with a small transaction. The impact of slippages is negligible when you are conducting a large order.
Stop-Loss Position
When finalizing your exit positions from a trade, you also have to consider the aspect of slippage. You can further shift your stop loss to accommodate the chances of slippage.
News Developments
The market volatility could increase during major economic events. You need to update yourself with important events in the financial area to conduct the trade properly. You can read credible news websites to get an idea about the significant economic developments.
You can also subscribe to an economic calendar to get an idea of the notable upcoming economic events in the world. It is better to avoid trading during economic events because slippage is higher.
Exit Strategy
When you have placed an order, it is important to exit the market by clicking the exit button on the trading platform. Some investors wait for their order to be executed. They expose themselves to riskier levels due to the chances of volatility. When you hit the exit button, it helps you take an extreme position in the market.
Learning the Market
A trader needs to understand the market trend and strategies to cope with the changes in forex trading. Once you know there could be chances for slippage, you can place your exit strategies accordingly. Therefore, it is essential to finalize a trading strategy, considering the occurrence of slippage in forex.
Besides, a trader should have thorough knowledge about trading terms and strategies. Traders need to follow the advice of experts in the field and read credible financial news and financial publications to get insights into the trade.
The technological advancements in forex trading are rapidly evolving, and new platforms and strategies are coming up. Adaptation of information in a most effective manner is a prerequisite for success in forex trading.
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