Slippage

In terms of trading, slippage refers to the difference in price between the price an order was intended or expected to be filled with the actual price an order was filled.

Retail traders are consistently at odds with slippage, as this is a highly sensitive issue that can lead to many problems with brokers.

For example, many traders view levels of slippage at brokers as a key determinant for their business.

For example, when trading forex, if a trader places a trade intending to enter a buy on the EUR/USD at 1.1160, but they only get into the market at a price of 1.1158, the slippage here would be two pips.

Ultimately, there will always be a time delay between the trader buying or selling any asset.

The time that the broker is able to execute the order, even if it’s only a few milliseconds, will ensure a delay is still there.

The problem of slippage can be particularly troublesome during highly volatile markets.

This is made worse with certain assets such as the forex, as prices can and do change within milliseconds, causing the order to be executed at a different price to what was originally requested.

Different Types of Slippage

Slippage can take one of two different forms. Negative slippage occurs when a trader enters the market at an inferior position to what they requested.

By contrast, positive slippage happens if a trader enters the market at a superior position to what they requested, which theoretically can happen.

For example, if a forex trader places a trade on their broker for buying the USD/JPY at 113.05, but the broker fills the order at 113.08, it means the slippage here is a positive slippage of 3 pips.

Overall, slippage is much more common in forex trading during economic news releases.

During this time, a price can wildly fluctuate in either direction, making it virtually impossible to enter a trade at the intended price.

Slippage can also occur due to lack of liquidity, especially on large orders, where there might be an inadequate amount of interest from the other party.

This happens due to orders only being filled at the requested price if there are enough buyers or sellers at the intended price and size of order.

To help reduce slippage, many traders rely on limit orders rather than market orders.

A limit order only fills at the price you want, or better. Unlike a market order, it won't fill at a worse price.