FOREX Slippage and the Best Way of Preventing It
January 14th, 2012
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Sometimes when you open a position you will encounter a very unpleasant thing such as FOREX Slippage. Market prices are driven by ticks, whereas FX market is discrete. It means that the price you want to enter the market at may not exist at a certain time point (it just lies between the current and the previous price tick), and as a result your broker offers you to enter the market at a different price, which is usually worse than the one you planned. This event is normally called FOREX slippage.
Typically, FOREX slippage takes place on bad economic news, or during the most active trading hours when FOREX sessions overlap. So if you are trading on news, well you have no other choice but accept the fact that you can’t avoid slippages. But in some cases, not always, you could also avoid FX slippages if you use delayed orders in trading.
You should also know that a slippage may give you a better closing price, if you exit the market using a delayed take-profit order. Better than you have originally plan, your position will be closed at the new price which may be 10 – 20 pips if a gap appears on the chart at the take-profit target.
You can avoid FX slippages by openning your position before the market gets extremely active, or use delayed orders at your planned target points. In the event that slippage happens, and your broker gives you a worse price, you possibly can wait a little and when the market pulls back to your price point, make an effort to place your market order again (you may not have this opportunity though).
The decision to accept or decline a slipped price depends on how bad the new price is, and how big your planned profit is. If you anticipate to end up with 200 pip profit, then 10 pip slippage is not so bad. But if you are targeting for only 20 pip profit, 10 pip slippage will really ruin the trade.
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