How to use slippage in forex

In this instance, forex traders will probably fill trades at the next best price unless there is a limit order in play. Slippage can also happen when a currency pair is trading outside peak market hours. Furthermore, spot prices current market prices can change quickly, allowing slippage during the delay that occurs between a trade being processed and when it is filled.

Slippage can also be caused by the imbalance of buyers and sellers. For every trader who wants to buy a currency at a certain price and specified quantity, there should be the same number of sellers, matching the specified price and trade size. If such a situation is not possible, an imbalance between buyers and sellers develops.

The imbalance causes prices to fluctuate moving up or down , necessitating trade orders to be adjusted to the next available price. Since there were no sellers at 1. Conversely, if there are many sellers willing to sell their euros, the same trader might find a seller who is prepared to sell euros at 5 pips cheaper 1.

The seven major currency pairs are less subjected to slippage since they are more liquid. Although slippage may not be entirely avoided , it can be reduced by utilizing different strategies. As mentioned, the major currency pairs have the highest liquidity. Conversely, rare currency pairs , also called exotic currency pairs , are traded less often, therefore, the liquidity is lower. Further, trade with a broker who uses various liquidity providers.

Make sure that your broker or brokerage deals with a variety of liquidity providers. Liquidity providers, such as central banks, commercial banks, and hedge funds, provide liquidity to the forex market by increasing transaction volumes. Try to avoid opening positions during periods of high volatility. Periods of volatility usually enhance the chances for slippage as prices move at a quicker pace and at wider intervals. The possibilities are always great that highly volatile times can occur in the forex market around major news events, such as a trade war between two world powers like China and the USA.

Check the economic calendar for scheduled financial news events, such as the gross domestic product GDP of a country. A market order is an order by a trader, requesting a broker or brokerage to buy or sell a financial instrument, such as a currency, at the best currently available price in the market.

The current market price is also known as the spot price. A market order is the most basic type of order in trading, but also particularly susceptible to spillage. Utilizing limit orders instead of market orders is a key strategy applied by forex traders to avoid or mitigate slippage.

A limit order is an instruction to a broker to fill a trade at a price level that is more profitable than the current market price. A limit order can only be executed if the particular currency reaches the limit price — the price required by the trader. Different from a market order, a limit order will never be executed at a worse price for the trader, thus avoiding slippage. A stop-limit order comprises two prices: a limit price and a stop price. With a stop-limit order, after a specific stop price is reached , the order is changed to a limit order to buy or sell a particular currency.

If the factors that affect slippage are defined, trader can decide how to reduce possible losses. And for sure it depends on the trading strategy. In medium-and long-term trading, the negative impact of slippage is not too significant. The price passes a large number of points, and the possible initial losses are negligible compared to the profit received. For traders using strategies on D1, slippage is not a problem at all. Scalpers should study the conditions provided by brokers more carefully before they start trading and select the most suitable one.

When opening an immediate execution order, the trader can set the maximum deviation from the requested price. If this condition is not met, the order will simply not be opened, thus preventing possible losses. The technical aspect is very important in short-term intraday trading. Any scalper should remember that to use these techniques of trading, it is better to have high-speed internet connection, in order to avoid the negative impact of third-party delays during the trading process.

Abstaining from trading on news is also one of the ways to prevent losses from slippage. However, in a fraction of a second, the price makes an unpredictable jump, and the order opens without any benefit.

Case Scenario

The average value of slippage within the news-based trading is about 10 points. The estimated average profit from such kind of operations when dealing with major currency pairs is about 30 points. Thus, slippage is expected to absorb about a third of the profit — we consider this as a significant loss. A good solution to minimize delays when opening trading positions is to use pending orders.

Often settings of automated Advisors used for trading, have a slippage parameter. If the trader sets it as a certain numeric value, the order will open only if the price level will not exceed it. If the price offered by the broker differs from the price stated by the trading robot, taking into account the slippage parameter, the transaction will not take place.

And for sure you should consider to our exclusive solution — NeroEx. This is a complex technology, which includes all the methodologies listed above and many others. Sincerely saying, we spent years to develop a stable technical product that could reduce the negative influence of the slippage. The most important thing you should consider — we succeeded in reducing the order processing time.

Thus, it allows for great possibilities to professional traders, always walking a tightrope.

• Slippage in Forex Explained for Dummies.
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NeroEx is expected to be a useful tool for them which may optimize their trading experience. NeroEx technology is available to each trader, coming to our platform. When a market gaps up, that means there were zero traders willing to sell at the levels of the gap. When a market gaps down, that means there were zero traders willing to buy at the levels of the gap.

There are also important to be aware of because it is possible to gap past a stop order and get filled at worse price than your stop order. Gaps sometimes result in corrective price action. If there is a gap, generally that is a signal to stay out of the market. If there is a gap immediately before the entry of a trade, it may be wise to cancel the trade.