What is Slippage in Forex? How to Avoid It and Improve Your Trading Performance

Slippage is a common phenomenon in forex trading that occurs when a trade is executed at a different price than the intended price.

In other words, it is the difference between the expected and actual price at which a trade is executed.

Slippage can have a significant impact on your profits and losses, depending on the direction and magnitude of the price change.

It can also affect your trading strategy, especially if you use scalping or tight stop-loss orders.

In this article, you will learn:

  • What causes slippage in forex and how to identify it
  • The difference between positive and negative slippage and how they affect your trading results
  • How to minimize slippage risk and improve your trade execution
  • Where to find more resources on forex trading education and risk management
Diagram showcasing price gap:
Diagram showcasing price gap:

Table of Contents

What Causes Slippage in Forex and How to Identify It

Slippage results from the bid-ask spread, the difference between the highest bid and lowest ask prices in a currency pair.

A market order instructs the broker to execute at the best available price, but the market price can fluctuate before execution due to factors like:

  • Market volatility: The rapid and unpredictable fluctuations in the price of a currency pair, usually driven by news events, economic data, or market sentiment.
  • Liquidity: The availability of buyers and sellers in the market, determines how easily and quickly a trade can be executed. Low liquidity means fewer market participants and wider spreads, which increases the likelihood of slippage.
  • Bid-ask spread: The difference between the bid and ask prices of a currency pair, which reflects the supply and demand of the market. A wider spread means a higher cost of trading and a higher chance of slippage.

To identify slippage, you need to compare the price at which you placed the order and the price at which the order was executed.

You can use your trading platform’s order history or trade confirmation to check this information.

An inforgraphic on What Causes Slippage in Forex
An infographic on What Causes Slippage in Forex

 

The Difference Between Positive and Negative Slippage and How They Affect Your Trading Results

Slippage can be either positive or negative, depending on the direction and magnitude of the price change.

Positive slippage occurs when the executed price is better than the expected price, meaning that you buy at a lower price or sell at a higher price than you intended.

Positive slippage can increase your profits or reduce your losses.

Negative slippage occurs when the executed price is worse than the expected price, meaning that you buy at a higher price or sell at a lower price than you intended.

Negative slippage can reduce your profits or increase your losses.

The impact of slippage on your trading results depends on several factors, such as:

  • Trade frequency and size impact slippage. Short-term and small-profit trades are more susceptible to slippage.
  • Order type and placement matter—market orders are prone to slippage, while limit orders offer protection but limit entry or exit.
  • Stop-loss orders reduce losses but may trigger slippage during market gaps or spikes.

How to Minimize Slippage Risk and Improve Your Trade Execution

While slippage is inevitable and sometimes unavoidable in forex trading, there are some steps you can take to minimize its risk and improve your trade execution, such as:

  • Trading in high liquidity hours reduces slippage.
  • Choose a regulated broker with low costs, fast execution, and positive reviews.
  • Use limit orders to avoid negative slippage. Realistic expectations include accounting for trading costs.
  • Eliminating slippage is impossible, but managing it improves trading performance.
  • Slippage is natural due to market dynamics, but risk management minimizes its impact.

Conclusion

Slippage, the gap between expected and executed trade prices, impacts trading outcomes.

Volatility, order size, and liquidity influence slippage.

Minimize slippage risk with strategic trading hours, a reliable broker, limit orders, and realistic expectations.

Though inevitable, effective risk management can mitigate slippage impact.

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