For those who have recently taken a dip into Forex Ocean with the intention of getting regular splashes of gains, they may, sooner or later, encounter the term “slippage” which, again may appear to be confusing as well as dreaded, owing to the word “slip”, but one need not harbour too much worry for it. Slippage simply refers to the difference that arises between the price that we see and the one that we are eventually made to pay for. Like, a certain Euro/USD pair may have the price tag of 1.1267 as we push the tab but later, we are revealed that we opt to file for price 1.1269. Such a difference is what slippage is all about.
NO, it is not actually nasty in its Approach
We are made to slip or slide on a certain rate, is not an obnoxious aspect but past years do indicate that brokers have taken undue advantages out of this while clients were made to suffer. But this is the case of the past when currency trading was not so much regulated and liberated as it is today, as even the US lagged behind in terms of safeguarding investors’ interest in Forex markets. Besides, since such is the de-centralized market thus it was hard for regulators to gain control of the entire situation.
Switching to the present scenario, where we find almost all registered and authorized Forex traders as immensely as well as strategically regulated and planned. Psssst !! A note of caution, if you are involved with a Forex broker who is not authorized and regulated, it is best to pull all of your investment out, else…. There are instances that brokers have come under huge penalties resulting in the cleansing of the industry.
Why does slippage occur?
Forex slippage takes place when the order of the market is treated at a different price than what is set in order. Likewise, stop loss closes the position at some other rate than what is present. Furthermore, in the Forex Market, slippage occurs due to high volatility rate which may be influenced by international news and events of global magnitude and then, when one trades in currency pair during odd hours. In either of the situation, prestigious and experienced Forex dealers will close the deals at the prices which would be appropriate and next to the best ones set for the specific currency pair.
Brokerage firms Sum Up Easy Explanation:
In almost 95% of the cases, when we get to know that Slippage being a common scenario taking place, at some specific Forex firm, this is simply a case of spreading negative news and reviews about that firm, with malicious intent. We need to understand that quick liquidity is the dominant reason here, meaning that orders are limited. Suppose, we need to buy Swiss-Franc, then there has to be at least a single person with this currency pair and who is all willing to sell it. When we go to put in the market order with a great price offered thereby, we bring in our traders and they find great prices to be just three pips away. Clearly, we buy the Swiss-Franc at prices which are three pips away from what we looked for.
Please note, that broker should not be blamed in such a scenario, as he simply made a match of the order and facilitated the deal for a currency pair at a quantity that we looked for.
Not surprisingly, slippage is the term which one does not get to listen too often in other market avenues but as the Forex field is pretty liquidated in the world. When fishing for profitable currency pairs, we may find weak pairs where slips take place too often than in other cases. We can cite an example of NOK/JPY pair, which is rare in volume and so in demand, as compared to USD/CAD pair.
Key Aspects About Slippage:
- Slippage is the situation when the participants in the market get a price which is far different than what he intends for trade execution swiftly,
- Slippage takes place when the bidding and asking price info, spread like wildfire and affect changes during the time when the request for the market order takes place and another market controller executes the order, which can also be an exchange,
- Slippage is normal and regular phenomena and even equities, bonds, share markets, etc, face this commonly.
What to expect from Slippage?
Simply put, with slippage, we should not be worried or feel the excitement during our foray into Forex market and this is mainly because of the fact that security is sold or is bought at a price which is the most favoured one, as per exchange or from the reputed market trader. Clearly, there are surfaced outcomes which are either the most superior or satisfactory or sometimes lesser than the intended market price.
As such, during slippage or when final execution price verses intended execution price is executed, we can get positive slippage, no slippage, or negative slippage. It all rests upon the smartness and alertness of the Forex trader we have joined hands with.
Market prices can undergo a quick change which allows slippage to slip into when there is a delay between ordering a trade and when it is executed and finished. The term is widely in use in other market avenues but with a similar definition but there are typical circumstances in other avenues.
When a negative slippage is prevented with a limit order, there is fear that trade not getting executed if the price is not restored to limit level. Such risks are common where fluctuations occur on a frequent basis and time window allowed for trade completion is reduced at the price intended to be paid for the trade execution.
In conclusion, we also integrate the solution to the problem that is, if you wish to skip such unwanted and nasty events of slippage, please put your market order in limited order. Then, traders should be told about the price or for a currency. If our prices are skipped, we will be spared from getting filed or we would not pay more than what we intend to. DicnoFX is a prime Forex Factory/Company and full license and acknowledgment from the government. We have associated insightful traders with a decent track record and with vast experience and goodwill in the industry. You can rely upon our expertise and we shall unravel new profitable avenues for your investment in every expansive Forex Market.