Price Slippage

10/12/2022
12:37 pm

“I placed an order at a certain price, but it was executed at another price.”
We often hear this sentence repeated among traders, and here the blame lies with the brokerage company! But you must know what is the cause?

Slippage is one of the inevitable things that you will experience during your trading period, it is the difference between the price we expect when executing a trade and the actual price at which you execute the deal. Slippage can be classified as positive slippage or negative slippage depending on whether the price difference is appropriate or not. It can be defined when you place an order at a quoted price while the order is executed at a different price, i.e. less than the requested price, and price slips occur during periods of market volatility or insufficient liquidity.

At the beginning of any trade, any trader thinks only of negative slippage, which reduces the price they achieve compared to the purchase price. However, positive slippage occurs when you receive a better price than you wanted to buy at, for example, when you buy GBP/USD At 1.1965 but the buy order is executed at 1.1962 it will get you into a higher position at a price 3 pips higher and this process is called positive slippage.

The trader cannot avoid slippage by 100%, but it is possible to avoid times that cause some fluctuations in the market, such as times of publishing news and economic reports, as they occur in reaction to important economic events, For this, it is recommended to look at the economic calendar to know the most important events that may affect the trading instrument that you want to trade on, although the large movements that occur in the market are attractive to some, but it is difficult to enter or exit deals at the appropriate price for your trades, in case the trader gets On a position at the time the news is published, it may face slippage in the stop loss process with a very high risk, contrary to its expectations.

The ask price may be high in the buying deals, as for the selling deals, the price slippage can come as a result of the low supply price, and stock traders can avoid price slippage during market fluctuations, by stopping giving market orders unless they are very important.

Price slippage is frequent with the opening of the markets and because of the price gaps that occur during the weekend as well. It is common knowledge that the spread tends to widen during volatile periods, which in turn is a favorable environment for the emergence of price slip, and if there is any imbalance between buyers or sellers This is the reason for the prices to rise or fall and when you open a trade or plan to place a pending order with the opening of the market, you should pay attention to the possibility of price slippage and the order will not be executed. It is preferable to move the Stop Lose a little further than usual if you are dealing with an open position.

Buyers and sellers bid in futures trading until they reach a common price and the price discovery process may not exactly match these two parties resulting in price slippage as the exchange acts as an intermediary to try to match the best price available to the parties involved. However, it may happen that the execution price of the contract The forward may not be beneficial to one of the counterparties, and a small margin can play an important role in futures transactions because the trader’s exposure to risk for such contracts is significantly higher than if he had invested in the spot market and for the same investment the profit or loss is greater for for the forward contract.

Even with the development of trading platforms using the latest technology, it is almost impossible to remove the inefficiencies that lead to price slippage, as price slippage occurs in the prices of all financial markets. For your trades over the past months and using the average slippage when calculating trading costs, this will give a more accurate representation of the profit you want to achieve and to reduce exposure to it, you must rely on TNFX, as it is a globally licensed ECN broker, transmitting orders and executing them in real time and without re-quotes, and you must make sure that there is a fast internet for execution The deals are intraday and the VPS system can be adopted in your trades.