Avoid Slippage In Trading
How to avoid slippage in trading. Maybe you get experience when executing orders, but you do not get the price in accordance with the price quote. But it gets a less favorable price for you.
For example, you buy a pair of EURUSD at 1.1000 with the size of the position of 1 lot for example. But when your order is active, it turns out that due to changes in time and speed of execution you get the price at 1.1003. This means that there is a difference of 3 pips from the price you expect.
This is called slippage. Of course, this condition is less favorable for traders, because it is not getting the best price as expected.
But slippage is not entirely detrimental because there is positive and negative slippage. At ECN or STP brokers, these are brokers who work with liquidity providers, in general, to provide the next best price as long as liquidity is available. Examples of possible slippage impacts are as follows;
- Positive slippage, for example, you place a buy order for the pair EUR/USD at 1.1300. When the order is transmitted the best offer price suddenly changes to 1.1290 (10 pips below our ask price). Hence the price will automatically be executed at a better price at 1.1290.
- Negative slippage, the order is the same as above with the difference in the best bid price suddenly changing to 1.1310 (10 pips above ask price). The price will be executed at the worse price at 1.1310.
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Slippage definition explained
Slippage is a condition where when you place an order the price at which your order is executed does not match the requested price. It often occurs in fast-moving and highly volatile market conditions that are vulnerable to rapid and unexpected changes.
Slippage that occurs can be positive or negative depending on the direction of price movement, and the position you buy or sell. Slippage can occur when you will open order or close an order. Here the role of the broker sometimes becomes cornered if the client experiences wide slippage.
This slippage occurs when a trader uses a market order or instant execution when using the MetaTrader 4 platform. A simple way to adjust the distance of the slippage is by setting the deviation by means of the checkbox enable maximum deviation from the quote of price under the order box and fill in the specified value, for example, 3 pips.
This means that if the price misses more than 3 pips then the order is not executed, but if the price difference is 3 pips and below, then the order is still liquidated. However, this feature sometimes becomes helpless when market conditions are very high in volatility where prices move quickly.
Slippage factor spread bet
For example, we will place a position using a stop order in the EUR/USD pair when the NFP (non-farm payroll) data is released. But apparently, US NFP data is better than expected. Market participants react to this report very quickly. So that the number of short positions (sell) multiplies more than long positions (buy).
This will influence to EUR/USD directly. If your sell-stop position is far from the opening price after the news release, the execution of the short position has been fixed to tuck in as much as that sudden change.
When the biggest slippage occurs
The biggest slippage often occurs when there is high impact news released. High impact news such as NFP, FMOC, which often causes prices to be very high volatile.
It’s best to avoid when there is big news scheduled. It is important to check the economic calendar schedule to find out whether there is big news today. You can visit Forexfactory to get an updated calendar economy.
Indeed after news usually the movement is very alluring. But daily traders often experience problems in this condition which drags them to a loss.
But if you are already in your position when there is big news, it’s best to stop loss to limit risk.
How to avoid Slippage trading?
Actually, we cannot completely control slippage because it is 100% due to market changes if you use an ECN broker. Different cases if you use market maker services.
However, we can still reduce risk by using the following methods
Limit order or pending order
By using a limit order the order will only be executed at the asking price according to that price. For example, you use a buy limit at the asking price of 1.1301. Then the price will only be executed at the price of 1.1301 or below. If the available price is not the same as the asking price or better. The buy limit will not be executed.
Market Order Deviation Range
Some brokers that use the MetaTrader 4 platform provide features that our asking price is executed with a tolerance of deviation of a specified number.
If you fill a maximum deviation of 3 pips, the price will still be executed as long as the slippage is only equal to or less than 3 pips. Beyond the deviation limit, the price of the request will not be executed.
Slippage is different from the requote. In the case of requotes when prices are not available due to market changes. The broker will provide notification of new prices available, which are not the asking price.
Requote provides alerts and new prices. If you agree you need to click ok as a sign of agreeing with the price.
Requote cases are often found in the market makers or dealing desk brokers because they manipulate prices. If prices are not available they offer new prices available.
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