Okay, folks, in today’s blog, I want to talk about a significant topic when it comes to trading. It essentially applies to all forms of electronic trading and all trading entities; however, I will focus here specifically on the forex market, and the topic is slippage.
Slippage, I think, is also the number one reason. It’s certainly one of the biggest complaints that I have to investigate with traders who think they’re being scammed by their broker, their trades are stopped out when prices didn’t actually hit their stop or they fail to have their profit targets hit when prices clearly hit their profit target on the chart but unfortunately that is a fact of life when it comes to electronic trading.
So, you need to understand about slippage, how it can affect your trading, and how best to avoid it.
What Exactly Is Slippage?
Let’s start off with a simple definition of what slippage is. Now this is my definition. I think they’re pretty standard. Slippage is the difference between the expected price of a trade, that is, basically what you think you’re getting into the trade at, and the actual price when the price is executed.
For example, on an MT4 trade ticket, you’ll see two prices: the bid and the ask. If you want to buy the market (expecting it to go up), you’ll buy at the ask price using market execution. You might expect a fill at 1.6042, but the actual fill might come back different, because markets and spreads move constantly. That difference is slippage.
If you’re selling, the same applies, the market price may change before your order is filled.
Let’s say you’re trading EUR/AUD with an ask price of 1.6012 and a bid price of 1.6008, a four-pip spread. You buy expecting to get 1.6012, but the actual fill comes back at 1.6014. That’s two pips of negative slippage, costing you money.
If you’re trading a standard contract, that might mean paying around 20 AUD extra.
Slippage, however, can also work in your favor. If you buy expecting 1.6012 but get filled at 1.6010, that’s positive slippage, you saved two pips. It doesn’t happen often, but when it does, it’s nice.
Ultimately, slippage can go for or against you, depending on how honest and transparent your broker is.
Can Slippage Be Avoided?
Now, unfortunately, there’s no real way to avoid slippage when it comes to electronic trading is a simple fact of life; however, the only real way to avoid slippage is to place pending orders. Pending orders are orders placed below the market in the case of a buy order or above the market in the case of a sell.
You need the price of the market to come to your price before the trade is executed, and will only execute at that price; however, that also has its consequences.
For example, if the bid and ask prices are 1.6008 and 1.6012, and you place a buy limit at 1.6002, you might see on your chart that the price touched that level, but the order didn’t fill. That’s because the chart price you see (on MT4/MT5) is usually the bid price, not the ask. The ask may not have reached your buy limit level.
So even if you see it hit on the chart, the order won’t fill unless the ask price matches your pending order. The wider the spread, the more disadvantage you may face in getting filled.
Slippage and Stop Loss:
Not get filled, okay, so now let’s look at slippage and the stop loss, okay, look at this example. We’ve got a price showing ask 1.6012 bid 1.6008, okay, now this is a four pip spread, let’s assume now I want to buy this market, I take a long trade at one spot 1.6012 by hitting a market execution, and I don’t get sick I get the fill at that price I place my stop order at one spot 1.6002.
Let’s assume the market price isn’t moving because of more buyers and sellers; however, the spread widens the spread is now widened for whatever reason out to 12 pips, which basically takes my bid down below the stock price. That basically means my stop order is going to be triggered by my sales stop is going to be triggered executing a sell trade at a market price and the market price might be well below here it might not be any buy orders at that price it might be much further down so I’m going to get a fill much lower down orders will fill at the next available bid very important the spread’s widened its triggering my stop and I’m going to get filled at the next available bid, which could be a long way away.
Often, traders will come to me and say I can’t believe I got stopped out. I was only risking 1 of the accounts, and indeed I ended up losing three or four percent um and often that is the case because the spread’s widened, it’s taken out their stop, and the next available um bid was much lower down, so be aware of that.
One of the most common questions or concerns that I get on my desk is about a sell trade, so I want to sell here. Looking at hitting the bid, I sell at 1.6008, no slippage there. As with any good trader, placing your stops at the same time as my stop is above the market at a 1.60144 pip spread. Let’s assume now markets don’t move, but big numbers released in some data releases move the market spread, and that spread has now widened to 12 pips. The ask price has now driven above my stop level, which is going to execute my buy stop to get out of that losing trade, but it won’t necessarily execute at 1.6020. It will execute at the next available ask price, which could be much, much higher, so be aware of that.
Now, at least you know why sometimes your stops don’t get filled at the desired price because it stop once triggered will fill as a market order, and that is where slippage can really hurt you and your trading account.
Slippage and Take Profit:
Slippage and take profit targets, let’s assume on this trade I have sold short, which means I think the market is going down, sold short at 60 to 0, and my profit target here is going to be 610, so I’ve sold here at the bid, and my profit target is down here.
Now moving on to what’s happened here, the spread has made the bid price now fall below my take profit target, yeah, remember the price you see on the screen on the chart and the challengestick chart is going to be this price, so naturally you’re going to think, hey, just hit 1.6008, I should be out of that trade, I should have taken my profits, but because the asking price is 1.6012 because that’s obviously where you’d have to buy back your position.
To cover that short trade hasn’t fallen to your take profit target. In which case, you’re not gonna get the buy order
Understanding the Bid-Ask Spread:
Filled, so slippage is directly linked to the spread, and the spread is constantly changing, okay, so this is a typical order ticket that I’ve just pulled from MT4. This is a live market these are live prices at the time of writing this blog.
These are based on a number of factors. This is the Euro against the US Dollar, the most actively traded currency pair on the planet. You’ll see there the spread can uh can tighten in quite closely on this broker platform uh different platforms different brokers of course have different uh spreads in there.
But of course, if you’re using a currency pair that maybe is not so widely traded, uh, like uh the Australian against the Swiss or so forth, you’ll see the spread there can be quite wide, and it can get wider as well. The spread, as I say, is constantly changing indeed; you can go out to some of the exotics, let’s see if I pick here the uh the um uh, the uh, what should we do, the US Dollar against the Swiss, okay, see how this spread can widen and can narrow on occasions as well, depending on the market liquidity.
So, remember the price you see on the chart, the price you see on the candlesticks, or on the bar chart is always going to be this price here. It’s going to be the bid price is okay.
Where Slippage Happens Most:
Let’s talk about where slippage occurs most, and if you understand where slippage occurs most, then you’re going to be better equipped to maybe avoid slippage um as much as possible.
Okay, so first up, slippage with a low liquidity pool and or wide spreads, remember a lot of traders blame their broker you need to make sure that your broker has access to a large liquidity pool because the large liquidity pool will basically reduce the size of the spread remember brokers in the business they’ve got to make money and normally they make money in two main ways.
They make money on commission or they make money on the spread you need to factor in that when deciding what broker to use are you going to use a broker with widespread and less commission or more commission and tighter spurs that is an important factor it is a topic on its own, as well, I do discuss that with all our members uh um regularly so check out the broker again.
This will, uh, be dependent on the style of trading that you’re doing. If you’re scalping on a five-minute chart, then you may want to have a broker with really tight spreads, so you’re not going to get whipsawed about with slippage, so the liquidity pool is really important, and the brokers, um, uh, cost um or charges, uh, how they’re going to implement those. The other thing I want to talk about is volatile market conditions market condition, but they’re going like this, going like that, at a time that is going to affect the spread.
The spread is going to widen as volatility increases. If you are trading in volatile periods, then you’re more likely to slip, so be aware of that again. It depends on the style of trading that you are adopting, miners and exotics. This is very important. I just highlighted a few there on that live ticket, but the spreads vary massively on the currency pairs that you are trading.
So, for example, the most actively currently trading pair on the planet is the Euro against the US Dollar now because it’s so active, that means it has many, many, many more market participants because that is the case the spread is very, very tight, usually sometimes brokers will offer pretty much almost zero spread at all and because the liquidity is so high that some trading currency pairs like the exotics um or some even of the miners, which are anything that’s traded not involving the us dollar, those spreads can widen as well if you’re trading a Swiss against the Singapore dollar.
For example, not many people are trading, so let’s be fair, that means the spread is going to be wider, which means you’re more likely to get slipped on some of your trades again, depending on the strategies that you are trading the speed of execution is very important if you’re based in some part of the world and your broker is on the other side of the world there is going to be a time delay, we call it latency from placing the buy or sell button with you are with your mouse to actually hit the broker’s servers, so, that delay could cause you to have slippage as well, so that is worth factoring in always check out the latency of the broker that you’re looking to trade and the currency pairs that you’re looking to trade because that can have an impact, uh, on the slippage as well times of the day.
Now I often get asked this. When is the best time to trade the forex market is. Well, the obvious answer is when most participants are in the market more liquidity and tighter spreads, so that usually happens during the overlap, so in the Asian sessions overlapping the European session or the end of the US session that’s overlapping the start of the Asian session, these are times of much higher liquidity now trading in the dead of night during the Australian time zone in the Asian session when nothing else is open maybe these times are not the best times to be trading.
If you’re trading higher frequency trading on the lower time frames because the spreads tend to widen, and data releases, this is very important because throughout the trading week, as you know, we have data releases, be it inflation data or job numbers, non-farm payroll.
Generally speaking, when we have a data release, liquidity dries up, and the broker’s spreads widen. Now this is often the case; I’ve seen it time and time again. Brokers are widening the spreads because of liquidity, and you’re getting stopped out, and the market hasn’t even come close to your stop level because uh of the thin liquidity, so in times of data releases, the spreads widen.
These are highly volatile periods, and slippage occurs more often, so be aware of when your broker rolls over. It’s a daily challenge because again, that can impact your uh slippage as well, it certainly impacts the spreads again, it depends on the strategy.
How to Manage Slippage
Trading so, of course, there are many things to consider when looking at spreads and therefore slippage when trading, so when deciding on your trading style your strategy, you need to be aware of these factors, so you can factor them into your trading plan.
You must understand the impacts of slippage and how it can affect your trading now. The obvious answer, uh, to avoid slippage altogether is to trade the higher time frames. If you’re trading higher time frames, it means your stops are going to be much, much wider, so you’re not going to be so susceptible to those big anomalies when the spread widens out, but of course, not everyone wants to trade the higher time frames people want to trade the lower time frames, and that’s absolutely fine, I trade low time frames I myself as well, but I do avoid certain circumstances, but I know the spreads are going to widen, and my stop is more likely to be triggered.
At least now I know, of course, that sometimes my take profit target won’t always be hit just because the candlestick trades through it, and sometimes I know I’m going to get stopped out when really the price didn’t actually get to my
Conclusion:
Thanks for reading this blog. Slippage is one of those things every forex trader faces, yet few truly understand until it costs them a trade. It’s not always your broker trying to cheat you, sometimes it’s just how electronic markets work. The key is knowing when slippage is most likely to happen, how spreads affect your entries and exits, and how to manage risk through smart strategy and timing. Once you understand it, you can trade with more confidence and stop blaming your broker for every pip that slips away.
FAQs:
1. What is forex slippage?
Slippage is the difference between the price you expect when entering a trade and the price you actually get.
2. Why does slippage happen?
It occurs due to rapid price changes, low liquidity, or widened spreads during volatile market conditions.
3. Can I completely avoid slippage?
No, but you can reduce it by using pending orders and trading during high-liquidity sessions.
4. Does slippage mean my broker is cheating me?
Not necessarily, most slippage is caused by market volatility, not broker manipulation.
5. How does slippage affect stop loss and take profit orders?
Your stop or target might execute at a worse or better price depending on market speed and spread movement.
6. How can traders manage slippage effectively?
Trade major pairs, use a reliable low-latency broker, and avoid high-volatility news releases.
