Although it’s habitually considered bad, slippage doesn’t necessarily give a negative or positive connotation to the final outcome of the trade. At the end of the day, slippage can, and should sometimes work in favor of the trader. If slippage is always negative and high then it may be a problem with the broker.
Whenever orders are executed, the corresponding parties (liquidity providers) buy or sell a currency pair at the best and most favorable available price.
There can be 3 outcomes to executing an order:
Slippage in the FOREX market is usually small and negligible because the market is very liquid. In comparison in other less liquid markets, when it occurs, slippage is usually larger.
There are, however, some measures that can be taken to minimize and even avoid slippage in FOREX trading:
One needs to understand the market conditions when slippage occurs. As we discussed earlier, it’s considered normal to experience somewhat larger slippage during important news releases like Central Bank interest rate changes, important elections or a pivotal economic report.
Slippage should not be a cause for too much concern, though, FOREX traders should try to avoid it as much as possible by making sure they open and close trades a couple of minutes before or after an impacting news event.
One last thing to note is that slippage can occur with all types of requested orders such as take profit, buy/sell stops, stop loss, and buy/sell limit orders.
Since the reason for slippage is due to forex market volatility, latency and execution speed, for trades affected by unavailable prices, the broker can opt for the next best available price.
Always look for a broker that can execute orders fast and can find alternative prices quickly in case the requested price is not available. We also recommend you to read our Truth about Forex Brokers.
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