3.4 Positive vs Negative Forex Slippage
Many beginners often ask how to find a broker with no slippage. However, the answer is that in the real market, slippage is unavoidable, and there is a difference between normal slippage and malicious slippage. Let’s dive into what slippage is and what causes it.
What Is Slippage?
Slippage refers to the difference between the requested price of an order and the actual execution price. Slippage typically occurs during news releases, economic announcements, and periods of extreme market volatility. Slippage can be either positive or negative.
Causes of Slippage:
The main causes of slippage are insufficient market liquidity and inadequate speed in order execution.
Insufficient market liquidity means there is not enough trading volume in the market to accommodate all trading orders. Consequently, orders may be executed at the best available price, resulting in a difference between the execution price and the expected price, causing slippage.Slow order execution can also lead to slippage. If orders are not executed promptly, market prices may change before the order is executed, causing the execution price to differ from the expected price.
Positive Slippage and Negative Slippage:
Positive Slippage: Occurs when, during opening or closing a trade, the system cannot execute the order at the price initially requested by the trader. The final execution price is more favorable to the trader.
Negative Slippage: Occurs when, during opening or closing a trade, the system cannot execute the order at the price initially requested by the trader. The final execution price results in a loss for the trader.
For example, if a trader places a buy order in the Forex market with an expected execution price of 1.3000 but, due to factors such as slow order execution, the final execution price is 1.3005, this is considered positive slippage. Conversely, if the expected execution price is 1.3000 but the final execution price is 1.2995, this is considered negative slippage.
How to Easily Check Slippage and Detect Malicious Slippage?
One of the simplest and most direct methods is as follows:
after opening a trade, set a take profit or stop loss. When the order reaches the take profit or stop loss level and is automatically closed (manually closing it may introduce errors), review the trade’s execution price in the trade history. Most reputable brokers will have both positive and negative slippage. If you find that your trades consistently experience negative slippage over an extended period, it may indicate malicious slippage.
In conclusion, the magnitude and direction of slippage are uncertain and depend on factors such as market liquidity and order execution speed. Traders should be aware of these risks and take appropriate measures to mitigate the impact of slippage on their trades, such as selecting high-liquidity trading sessions and using fast trading platforms.
Conclusion, The presence of slippage and its characteristics are variable, depending on market conditions and execution speeds. When choosing a Forex broker, traders should pay attention to factors such as regulation, historical performance, and customer service to minimize slippage risks.