You set your entry at 1.0850. You click "Buy." Suddenly, you're in the trade at 1.0852. What happened? You just experienced slippage.
Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It is one of the "hidden costs" that can ruin a high-precision scalping strategy.
What Causes Slippage?
- High Volatility: During news releases, price moves so fast that the broker can't fill you at your requested price.
- Low Liquidity: If you are trading at 3 AM on a Sunday or in an "Exotic" pair, there might not be enough orders to fill your position instantly.
How to Minimize Slippage
- Use Limit Orders: Unlike Market Orders, Limit Orders ensure you are only filled at your price or better.
- Avoid News Spikes: Don't be the trader trying to buy the exact second the NFP data drops.
- Trade Major Pairs: Stick to EUR/USD and other majors that have massive depth of market.
Conclusion
Slippage in forex is a reality, but it doesn't have to be a disaster. By using professional execution methods and avoiding "noisy" market conditions, you can keep your entries precise and your profits intact.
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FAQ
Q: Is slippage always bad? A: No. "Positive Slippage" can happen where you get filled at a better price than you asked for.
Q: Do ECN brokers have slippage? A: Yes. All brokers experience slippage because it is a function of the underlying market liquidity, not just the broker's software.
Q: What is a 'Slippage Tolerance'? A: Some platforms allow you to set a maximum amount of pips you are willing to "slip" before the trade is canceled.