What is a slippage in trading?

Slippage is a common trading phenomenon that occurs when there is a difference between the expected price of a trade and the actual price at which the trade is executed. This article explains what causes slippage, how it affects your trading, and strategies to manage it effectively.

Slippage refers to the difference between:

This price difference can work either in your favor (positive slippage) or against you (negative slippage).

1. Market Volatility During periods of high market volatility, prices can change rapidly between the time you place an order and when it's executed. Major economic announcements, unexpected news events, or market openings can trigger significant volatility.

2. Low Liquidity When there is insufficient trading volume in the market, there may not be enough counterparties willing to trade at your expected price. This is particularly common in:

3. Order Size Large orders may need to be filled at multiple price levels if there isn't enough volume available at the best price, resulting in slippage.

4. Execution Speed Even milliseconds of delay in order processing can result in price changes, especially in fast-moving markets.

Positive Slippage When the execution price is better than the expected price:

Negative Slippage When the execution price is worse than the expected price:

1. Use Limit Orders Unlike market orders that execute at the current market price, limit orders only execute at your specified price or better, helping to avoid unexpected slippage.

2. Avoid Trading During Volatile Periods Consider avoiding trading during major news releases, economic announcements, or market openings when volatility is typically higher.

3. Trade Liquid Markets Focus on more liquid markets and trading sessions when there's higher trading volume.

4. Split Larger Orders Breaking down larger orders into smaller ones can help reduce the impact on the market and potentially minimize slippage.

5. Check Spread Widths Wider spreads often indicate lower liquidity and higher potential for slippage.

At FXTRADING.com, we strive to provide the best possible execution for our clients. Our trading infrastructure is designed to minimize slippage through:

However, it's important to understand that during extreme market conditions, some slippage may be unavoidable.

For more information about our execution policy or if you have questions about slippage on your trades, please contact our Service Hub through your Client Portal.