Is it possible to reduce slippage in Forex?

Forex slippage - what is it?

The Forex market is characterized by the fact that there are no trifles in it. Any seemingly insignificant detail over a long distance can turn around. Pay attention to any price chart - quotes change every second. It is on these minor fluctuations, or, as they are also called, market noise, that many trading strategies are built. Scalping, pipsing strategies (see) - the purpose of the transaction here can be only a few points or tens of points. But there are many transactions during the trading session. And, imagine that during the execution of each order there is a delay, during which the price moves only one pip towards the conclusion of the transaction. That is, one point is lost. And if there are a hundred such transactions per trading session? That's a hundred lost points daily. In this article, we'll talk about the following:

1. Volatility;
2. Trading account type;
3. Trade order execution type.

What is slippage?

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Thus, we come to the concept of slippage - a phenomenon that can have a significant impact on the profitability of a trader's trade, but which the trader himself cannot influence. Slippage is the difference between the actual price of the transaction and the price that exists at the time the trade order is sent. Objectively and in simple terms, slippage can be explained by the fact that when opening a position to buy or sell an instrument, there must be a buyer or seller who will buy or sell this instrument. Due to the absence of such a buyer or seller, the transaction is concluded at the nearest price.

The amount of slippage depends on many factors and can reach a size that completely eliminates the trader's efforts to make a profit. This question is especially relevant, as mentioned above, for scalping or pipsing traders. After all, it is necessary to take into account not only slippage, but also such fixed costs as and, as well as various types of broker commissions. And with scalpers trading goals of several points, the amount of these costs in most cases can completely “eat up” the profit from a particular transaction.

Forex slippage is the higher, the higher the market volatility. Additionally, slippage is also affected by such factors as the speed of processing a trading request by a broker, the option for processing an application, and the type of a trader's account. Slippage can occur in several ways:

• when opening a position at a market price;
• when exiting a transaction on the market;
• when entering a position using a placed pending order;
• when closing a deal with a pending order.

As you can see, slippage is most significant in short-term trading. With a medium-term and long-term trading strategy, slippage is not so critical. To reduce the influence of slippage, consider the factors influencing it in more detail.

Factors affecting slippage

• Volatility;

Volatility is a financial indicator that determines the rate of change in the price of an instrument. Volatility can be influenced by factors such as:

1. general economic condition, changing depending on the impact of fundamental factors. For example, the economic condition of an agricultural state is significantly influenced by weather conditions, the yield of cultivated crops;
2. activity of market participants, depending on the current trading session and trading instrument. Thus, the greatest volatility in the movement of currencies is observed during the London session. The American session can dramatically change the instrument's volatility during the release of important news. During the Pacific session, currency pairs with the Japanese yen are the most volatile;
3. publication of macroeconomic statistics - the market reacts especially violently to the discrepancy between forecasts for indicators and the actual indicator.

• Trading account type;

In the Forex market, in addition to the categories of demo and real accounts, on the concepts of which we will not dwell, there are the following types of accounts:

1. standard account (Standard or Classic). This is the most popular type of account, especially among. It is characterized by availability and undemanding to the size of the deposit, large, medium speed of execution of transactions and a wide range of traded instruments;
2. ECN account is a tool for interbank trading. It is characterized by high speed and accuracy of execution of trading orders, relatively low leverage, smaller spreads;
3. HDD or STP accounts. The main difference of this interbank account type is the way the trader's order is processed. It is characterized by high speed and accuracy in the execution of trade orders, the absence of intermediaries and conflicts of interest, and minimal commissions.

• Type of trade order execution;

There are two types of trade order execution:

1. Instant Execution - positions are opened at the price of the trader's order. With this type of execution, the phenomenon of slippage is completely absent, but, if it is impossible to conclude a transaction at the required price, the transaction is canceled and an offer appears to conclude a transaction with other conditions. This phenomenon is called "requote" - refusal to execute the trader's order at the appointed price.
2. Market Execution - the position will be opened in any case, but possibly at a price different from the price set by the trader's order.

How to reduce slippage losses

Having decided on the factors that affect slippage, you can move on to ways to reduce losses from this phenomenon. The development of methods should be based on the trading style of the trader. If a trader practices medium or long-term trading, slippage is not as critical due to the small number of trades with high profit targets. Scalpers should do the following.

First of all, you need to study the trading conditions provided by various brokers. You should choose a broker that advertises "immediate" execution of orders and has the "slip limit" function in the terminal. A good way to choose can be to visit forums specializing in short-term trading - reviews about the work of brokers will allow you to choose an intermediary with minimal slippage. Personally, I prefer to work with time-tested brokers such as Alpari, FxOpen, etc.

Determine the trading time with increased market volatility and try not to open positions at this time. This advice is not suitable for trading strategies that use highly volatile trading instruments.

The release of macroeconomic news causes increased market interest in the currency pair for which the news is released. Traders who do not practice trading on the news are advised to refrain from trading in the periods before the release of the news and for some time after the release. The release of macroeconomic news can not only allow you to earn, but also, as a result of slippage, receive a significant loss.

In terms of choosing a trading account, short-term traders should pay attention to the conditions provided by trading accounts such as ECN, HDD or STP. Most of the brokers I work with have similar types of accounts ( , ). These types of accounts can provide the required speed of execution, eliminating the occurrence of slippage. Scalpers will appreciate the work on the STP account. Transactions are concluded with the highest possible speed and accuracy. The absence of intermediaries not only increases the speed of processing a trade request, but also increases the security of transactions - the possibility of deliberately slowing down the execution of an order by unscrupulous intermediary companies is excluded. An STP account is an excellent tool for an experienced trader, designed to work with fairly large amounts.

The preferred type of trade order execution for any kind of trading is Instant Execution. But choosing this type, especially in short-term trading in a volatile market, can cause massive requotes, which will also have a significant impact on the trader's profitability. That is why the choice of the type of execution should take into account other trading conditions of the strategy used by the trader.

Another way to reduce losses from slippage on the stock exchange and forex is to use pending orders rather than market ones. However, you should pay attention to the fact that, of course, only "limit" type orders are executed without slippage. At the same time, stop orders can be filled with slippage. This is because a limit order has a predetermined price, giving the broker the necessary time limit to execute it.

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Typically, traders do not think about price slippage until they personally experience the loss from this phenomenon. In this article we will look at what it is, talk about how you can deal with it.

1. What is price slippage

Price slippage(English "slippage") is a situation in the financial market, when the market execution occurs at a price worse than originally expected. Most often, this is noticeable at the time of the execution of a protective stop-loss order, which is often executed at a price worse than indicated in the original order.

Forex brokers attribute slippage to a typical market situation: "there was no better price." This occurs often at times of high volatility and the price literally "jumps" over some price levels.

For example, there is a "BUY" order bought at $1300 with a stop loss of $1290.00. If the market goes in the opposite direction, then there is a possibility that it will be executed at $1289.50 (ie 50 cents worse than we expected).

Slippage may not always work at a loss. In case of execution of a take profit (profit fixation), the execution of an order at a better price is also possible. Such situations happen much less often than with stop loss closings and many traders do not notice this bonus.

The larger the broker, the more banks it works with. And this, in turn, increases liquidity and gives chances to buy/sell at better execution prices. This is one of the good reasons why you should only deal with reliable Forex brokers:

2. Reasons for price slippage

Most often, slippage occurs on little liquid assets and in the case of large volumes that need to be executed. This issue is especially acute if you trade on MICEX shares of the second tier, where the total trading turnover per day can be only a couple of million rubles.

In general, we can note the fact that slippage is a completely normal market situation. It is normal that there may not be a counter order of the same volume and at the same price that you expect in the markets. All experienced players have faced such situations. It does not depend on the trader. Let's look at options to deal with it.

3. How to deal with slippage

Any trader should take into account "slippage" in building and testing strategies. Otherwise, a strategy developed in the real market can bring unpleasant surprises and generally turn out to be unprofitable, although it could show excellent results in history.

There are no practical ways to deal with slippage. There are only recommendations.

1 Choosing a reliable broker . For large brokers, such situations also happen, but less often and the chances of loss are on average less (tested in practice).

2 Try not to place stops at strong support or resistance levels. Here, the price can fluctuate greatly and literally “jump” in moments, even gaps are possible, and this in turn causes slippage.

3 Play in liquid markets and assets. Simply put, where there is a good turnover of trades. For example, if you need to buy shares for 10 million rubles, then it is much easier to do this on "blue chips" than on assets where there is practically no liquidity.

4 When the most important economic and political news is released, it is better to close the position in advance. Or put a protective order far away.

4. Slippage on gaps

In the case of gaps in the market, slippage is logical. In this case, the closing price of the position will be executed at the best price available on the market. And it can be very different at the opening, which will lead to a greater loss.

For example, the stop loss was at $1300. The market closed at $1303. The opening started at $1296. In this case, the close will occur exactly at $1296 (or even worse), although we expected $1300.

Is it that scary?

Most of the time, gaps are of little value. However, there are also huge gaps. Let's remember March 2014. On Monday, the MICEX market at the opening collapsed by 10-15% at once. Even playing without leverage, the losses would be more than significant. The good news is that these situations rarely happen.

When creating automated exchange robots (or, as they say in Forex, advisers) or when using them, almost everyone has a special slippage parameter in the settings. It is responsible for the maximum slippage when opening an order.

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• Scalping in Forex and Stock Exchange - Strategies and…

It happened to you that you wanted to enter at one price, opened an order, but it did not open immediately, but with a delay, and the price had already changed a lot. This phenomenon is called slippage in Forex. There may be several reasons for this unpleasant phenomenon.

What is slippage in Forex?

Many novice traders cite constant slippage as an excuse for their terrible trading. They complain about the broker, curse the market, but do not want to learn how to deal with this natural phenomenon. Don't repeat their mistakes. In this article, we will look at what is considered slippage, when it occurs, and how to mitigate its negative impact.

Slippage is the difference between the actually received transaction price and the expected one. For example, a trader sends a market order at 2.1322, but the trade is made at 2.1326. This is slippage, so disliked by many beginners and losers. However, this phenomenon is not always negative, sometimes there are situations when a trader gets a better price than he wanted. In this case, slippage is only beneficial, since it allows you to save several tens, and sometimes hundreds of dollars.

Main causes of slippage

Most often, the "culprit" of obtaining a less favorable price is liquidity. If there is a great demand for a certain financial instrument on the market, the trader may not have time to get the desired price at the moment. He sends a market order of a larger volume than the nearest layer of liquidity has, as a result, the transaction is made in parts at different prices.

The second reason for slippage is technical failures. These include low Internet speed, signal transmission delays between the server, liquidity provider and terminal.

In what situations can slippage occur?

1. When opening a transaction at a market price.
2. When the trade closes on the market.

Most of all, novice speculators lose on creating positions at current prices. They strive to break into trading as soon as possible, forgetting about possible losses. It is preferable to use the Instant Execution mode, which implies the exact execution of an order. You will either get the asking price or you will be left out of the position. This option can be selected in the trading account settings.

How to deal with slippage?

First of all, you need to take care of high-quality Internet. It must have high speed and reliable connection. It is better to forget about Wi-Fi right away, only a dedicated line.

The next step is choosing a broker. The office must be reliable and verified. Many brokers sin by painting and artificial technical failures.

Use the possibilities of your trading terminal to the maximum. For example, in MetaTrader4 there is a useful option - "Set the maximum allowable deviation from the requested price". Be sure to set the amount of slippage acceptable to you in points. In this case, if the actual price is very different from the desired one, the transaction will not take place.

If you choose larger timeframes for trading (H4, D1, W1, MN), the negative effects of slippage will be less noticeable. You will be focusing on the issuer's big moves, so small price swings won't make a big difference.

Nuances in slippage

When significant news comes out (politicians' speeches, changes in economic data, force majeure), the liquidity of trading instruments drops sharply. This greatly affects the course of opening a trade, since it is made at a higher price. But the stop order remains in place! This must be taken into account when trading.

Experienced traders stop trading half an hour before significant news appears. In this way, they insure themselves against “bad deals”.

Positive slippage can only occur if the financial instrument rapidly changed the direction of the trend at the moment when the trader submitted an order in the direction of the current trend. This happens extremely rarely, most often a requote is displayed on the screen. In this way, the broker announces a better price, delaying the opening of a transaction. With positive slippage, the stop order remains unchanged.

Slippage is inevitable for every trader, whether they trade stocks, futures, or cryptocurrencies. Slippage is a situation when, when entering or exiting a trade, you receive a price that is not what you expected.

If the stock's bid price is $49.36 and the ask price is $49.37, and the trader submits a market order to buy 500 shares, he expects to get executed at $49.37. For those fractions of a second that the application needs to reach the exchange, some event may occur on the market or just a delay in quotes. As a result, the order may be filled at a different price, such as $49.40. In this case, the difference between the expected and actual purchase price is $0.03, which is slippage.

Slippage and order types

Slippage occurs when a trader uses market orders. This is one of the types of orders used for. Slippage can be obtained both on entry and exit.

To eliminate or reduce it, you can send to the exchange not market, but limit orders.executed only at the specified or better price. Unlike the market one, it cannot be executed at the worst price. Therefore, the use of limit orders allows you to avoid slippage. In some cases, this is a great solution. But not always.

Position entry

To enter a position, many traders use limit and stop-limit orders (not to be confused with stop orders!). This allows you to simply not enter a trade if it is not possible to get the desired price. Sometimes the use of a limit order causes a profitable opportunity to be lost. In return, the trader insures himself against slippage when opening a trade.

A market order guarantees a trade, but there is a possibility that slippage will occur and the trader will receive a worse price than expected.

Perfectly, should provide for entry into positions using limit or stop-limit orders, so as not to incur unnecessary losses due to slippage. Some strategies involve working in a very volatile market and therefore require the use of market orders. In this case, it must be taken into account that slippage may occur.

Exit a position

Already being in a deal, a trader has less control over the situation than before entering. This means that, under certain circumstances, he may be forced to use a market order to exit the position quickly. In more favorable conditions, you can also use limit orders.

When the price goes in the right direction, you need to set a limit order at the target level. Suppose a trader buys a stock at $49.40 and places a limit order to sell at $49.80. In this case, the shares will be sold only if there are those willing to pay for them at $49.80. You don't have to worry about slippage. The seller will receive a price of $49.80 (or higher).

When placing an order to limit losses in case the price goes in an unfavorable direction, it is necessary to use a market stop order. This will provide a guaranteed exit from a losing position, although the execution price may differ from the desired one. A stop-limit order is executed at the specified price, but it is not suitable for limiting losses, because if the market goes against you and the desired price is not filled, the position will remain open and the loss will increase. That is why in this case it is better to use a market limit order - even with some slippage, it will provide a limit on losses.

How to avoid slippage

The biggest slippage usually occurs during the release of important news. Therefore, day traders should avoid making trades at times when news events are scheduled, such asor publication of a company report. At first glance, the news-driven big moves look attractive for trading. But keep in mind that there may be difficulties with entering and exiting at the desired prices. If a trader already has an open position at the time of the news release, he may experience slippage when a stop order is triggered, that is, the risk in the transaction increases.

A day trader needs to keep an eye on the economic calendar and try not to trade a few minutes before the release of important news and a few minutes after it. It is better to open positions not before, but after the news event.

If the news differs from the specialists' expectations (the so-called surprise), then the slippage may be quite large. And in many cases it is impossible to avoid it. If a trader does not trade during the release of important news, then in most cases slippage does not create big problems for him. Therefore, it is always recommended. If disaster strikes and you get slippage on your stop order, don't fret, just look at what could happen if you didn't have a stop order at all. The threat of slippage is no reason to refuse to take any possible measures to manage the risks in the transaction.

Keep in mind that slippage usually occurs in instruments that are traded on small volumes. You need to try to trade stocks and futures with large volumes. This will reduce the chance of slippage. In addition, you need to work with stocks and futures in.

Conclusion

It is impossible to completely avoid the risks of slippage. Therefore, this phenomenon should be treated in the same way as a spread or commission per trade. Sometimes the price is worth paying, but not always. Where possible, limit orders should be used to enter positions. Also, limit orders should be used in most cases to exit profitable trades. If you need to enter or exit instantly, you can send a market order. Market stop orders should be used to limit losses. Market orders are subject to slippage, but in cases where you need to enter or exit quickly, this small amount pays off.

From time to time there are situations when the order is executed at a different price than the trader sent the order. The reaction of any trader in such a situation is to blame the broker, who deliberately interferes with opening at the level at which the trader sent the order. However, is it the broker's fault?

In the article, we will look at what slippage in Forex really is and how to minimize risks.

What is slippage in forex

Forex slippage(slippage) is the difference between the price at which the trader sent an order to the broker to open an order and the price at which the broker executed the order.

Slippage in trading in simple terms is the difference in price between the quote of the order opening order and the actual price at which the position was opened. A line break on a graph is called gap, but slippage can occur not only at break.

Many traders mistakenly believe that slippage on the chart is a fraudulent manipulation by brokers, with the help of which they gradually “ drained» clients. And indeed, at first glance, this is quite a logical explanation. The company theoretically can use the capabilities of the server part in order to prevent the trader from earning.

Moreover, slippage can be both negative and positive.

In the latter case, the deal will be opened at a better price. Also, slippage should not be confused with requotes. The latter appear when the market does not have the price at which the trader submits an order. This can happen, for example, on low-liquid assets or during periods of increased volatility, when quotes change really quickly.

How and why slippage occurs

In fact, slippage in Forex is not the intrigues of a broker, but a sign that the work is really being done in the market. After all, if transactions are brought to the external market, it is extremely difficult to execute all orders of all clients at the same time.

Most often, some queue of applications is formed. Moreover, with insufficient liquidity, the price can really slip by several points in the direction of the trader's forecast or even against it.

The inability to satisfy the client's requirements can lead to the fact that the order will be split up in the market to sell it to several buyers at once. The weighted average price will already be in effect there, which may turn out to be worse than the one that was in the terminal at the time the trader sent the order.

It also happens that one of the suppliers is not able to fulfill the application. In this case, the broker will be forced to look for another supplier. During this time, the price may change slightly.

Most often, slippage occurs when important statistics are released. At this time, the liquidity situation on the market changes dramatically. Its major suppliers are leaving the market, as they may suffer losses in the event of a sharp change in the market situation.

The broker, in turn, can expand the spread so as not to be at a loss. As for the trader, he starts having problems with opening an order, requotes and slippages are possible.

Finally, slippage also appears when there are technical problems. Moreover, they can be both on the broker side and on the client side. Including due to the weak speed of the Internet.

Ways to minimize risks

On the one hand, slippage is good, as it shows that the trader is really trading in the market through a broker. On the other hand, if such situations happen very often, this leads to the loss of part of the profit, and sometimes to losses. There are several recommendations that will minimize the risk of slippage.

Quality Internet

Today, the Internet is of sufficient quality, but not everywhere and not always. There are interruptions, the speed may not be high enough, and so on. Accordingly, it is necessary to find a reliable provider.

If you are working through a Wi-Fi router, you may need to abandon it and switch to a wired modem. This scheme is much more reliable. At the same time, it is recommended to disable all other programs that also use the network.

• This may be most relevant for those who are engaged in scalping, and aggressive ones. First of all, you need to disable torrents, Viber, Skype and other programs that have constant access to the network.

Platform settings

Also, in order to avoid serious slippage, it is necessary to make some adjustments on the platform Metatrader 4. In the window for placing an order, there is a special window that allows you to set the maximum price deviation from the requested one. Here you can display from 1 to 10 points.

The essence of this setting is that, in theory, if the price at which a transaction can be opened differs from the deviation by at least one point, the position will not be opened. But in practice this is not always the case.

Pending orders

In order to reduce the impact of slippage on trading results, some traders use the so-called Limit orders. These include, in particular:

• buy stop
• Sell ​​Stop
• Buy Limit
• Sell ​​Limit

Buy and Sell Stop orders are triggered only when the price reaches them. Accordingly, there are the same risks as when opening positions manually. The broker will process the application, but this does not mean that there will be any special conditions for the order. It will also go on a first-come, first-served basis and slippage is possible here.

As far as limit orders are concerned, they are sent in advance and thus some of the liquidity is already booked for the trader. There is also a risk of slippage, but it is much lower.

Refusal of scalping and work on higher timeframes

This is another way to minimize risks. Naturally, if the trader does not care what strategy to follow. If he is a fan of scalping, he needs to consider other possibilities.

For those who switch to daily charts and open 1-2 positions per week, and sometimes less, even a difference of 5 points does not seem to be noticeable. If the work is carried out on a five-minute chart, the same 5 points can be significant.

Do not trade during the news

Large liquidity providers may leave the market during the news release period. Accordingly, slippage on the chart is possible, and quite serious ones at that. It is also worth giving up trading at such moments because spreads usually increase sharply for all brokers. They can reach up to 50 points.

Changing trading account or broker

Sometimes such a step gives a positive result. By changing the trading account, you can get more favorable conditions. However, do not assume that this will solve the problem of slippage. The fact is that they happen to all companies without exception and this is quite a normal phenomenon.

Brokers who wouldn't have slippage just doesn't exist.

Sometimes finding such a broker is akin to finding the Grail. You can open accounts in all companies without exception and the result will be the same.

But if Forex slippage is common, you should really consider a second broker. And for starters, it is advisable to test and compare which of the companies has this indicator less and less often. Sometimes it also happens that for different brokers with different liquidity providers, slippage can occur more or less frequently.

Best Forex Brokers

FinmaxFX Alpari fxpro

Selection of certain news

Not all news leads to serious market movements. Accordingly, slippage may occur on some, and the movement itself will be insignificant. Other news leads to strong moves where slippage may not be as significant.

The truth here is also relative. Slippage, as well as the spread, can increase in different ways when one or another statistics is released.

Instead of output

Slippage in Forex trading is common, and “common” does not make it pleasant.

You can only fight it if it depends on you. In other cases, it is best to insure with pending orders and trading platform settings.

When chart slippage occurs for market reasons, traders are powerless. But if such situations become more frequent, then you should think about changing your trading account or liquidity provider.

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