What is Slippage in Forex Trading?

Slippage is one of the most typical troubles in Forex trading. Just picture that you have executed the perfect Forex trade, and then discovered a very small difference in price which was created by your Broker. This phenomenon is called slippage and it can severely dent your long-term profitability.

Slippage Management: Prop firms have an edge on the rest of us when it comes to slippage. Read on to know how these firms can help reduce slippage. In addition, we introduce what slippage is and how it affects your profit/loss as well Learn about essential tactics to make sure you on track when trading Forex.

What Is Slippage?

Slippage is the difference between the expected price of a trade and its actual execution.

Market orders Can Take Place Either for trades that are made to enter or exit, and this can large impact on buy and sell orders. Typically traders set an entry they would like based on their strategy and analysis, but for a multitude of factors (i.e. the market is illiquid so price moved slightly over what one wanted), things are not quite always going to go as planned.

That means, if you are willing to purchase GBPUSD pair at $2000 and the price suddenly moves up the order will be executed on a rate of let’s say # 2000.50 That 50 cents is slippage.

While it might sound miniscule, the gap can translate into higher entry costs and less profit when your exit point arrives. In this case, if it is a buy order, slippage means you are buying at higher price and profit margin decrease. In the case of a sell order, slippage would result in you selling at a significantly lower price which could touch your profit and losses.

Slippage management is vital for Forex traders while prop firms like Audacity Capital are there to help ensuring your strategies are efficient, and not harming the profit margin.

The Causes of Slippage

Slippage can be caused by a number of other factors but the most important in crypto is market volatility.

Liquidity: Liquidity determine the how fast you can buy and sell assets from a given market without moving up or down price of it. When the market is liquid, there are lots of sellers buyers and a large order can trade with minimal or no price changes. Low liquidity, on the other hand, means that there are few buyers and sellers. It happens because, large orders can move prices quickly and this prompt a slippage.

Market Volatility – High volatility typically causes large price jumps which results in slippage. The prices of purchased or sold assets can fluctuate a lot about the price that you wanted especially during high-impact news.

Delay in Order processing

Placing the orders in a timely manner helps to keep costs low and profits high. Failure to process orders in a timely manner can result in slippage, where the price changes before an order execution.

For example, if you decide to execute a market order on EUR/USD at 1.2500 and the processing of your order lags leading to outlaying in currency sale off for 1.2495 it will mean incidental slippage difference by five pips For the typical lot account equal to 100,000 units this equals $50 worth of slippage and is a loss for forex trader.

A pip value in a standard lot is worth 10 dollars

$10 x5 pips = $50.

The main order types are: Market, Limit and Stop orders.

Market Order: An orders that buys securities without a specific price or time limit.

Limit Order: An order to buy lower or sell higher than the market at a specific price.

Stop Order: A market order to buy above or sell below the market at a limit price.

Each of these orders need to be placed at the correct time for benefiting from an up move and losing out shorter on the down.

The Impact of Slippage

In general, slippage affects P&L (profit and loss) in the following ways:

It Raises the Entry Expense: It can be at a price higher than your planned execution, which easily takes away more money from you.

Edge Erosion: While slippage might lead to only slightly different prices, it has the potential to eat up edges thereby reducing profits. You can go from a positive position to breakeven or losing trade.

High Transaction Cost: Multiple slippages over a countless number of trades leads to high transaction cost, which will cut down your profit drastically. This, of course can only be faced by the traders who have short term trading strategies.

Slippage is fairly used in prop firms, that means you will be able to make the most profits. At Audacity Capital, all Forex traders can expect a favourable trading environment that minimizes slippage making it easier for the right order executions.

Minimizing Slippage

The repercussions of slippages can be lowered by;

Limit Orders: When you use limit orders, It helps to execute your trade at the price that you anticipate. This reduces the effect of slippage. These types of orders give traders more fine control over their trades.

Trade in High-Liquidity Pairs : Trading currency pairs that have high liquidity simply mean a larger amount of participants which would create more competitive market. That is, a lot of buyers and sellers in the market leads to tighter spreads but also lower slippage.

Trade At The Best Market Hours: While the Forex operates 24 hours marketplace, it does not mean that you ought to exchange at any point. Trading volume and market liquidity high: these are the times for us to avoid slippage with London and New York session.

Prop Firms and Slippage

Prop firms can also help Forex traders prevent large slippages The benefit is that these entities have access to better pools of liquidity and can allow us traders to place orders quickly without affecting the current price. Which in turn reduces as much slippage.

More sophisticated risk management tactics are also practiced with proprietary trading firms to manage high volatility in the market. Traders are able to receive consistently massive payouts by implementing their risk management plan.

Begin your Forex Trading journey with Audacity Capital where you can avail High liquidity, Tighter spreads and minimal slippages. Funded account up to $2 million with profit share of as high as 85%

Conclusion

You can lose much of your expected return through slippage, as the extra expenses should be subtracted from what you are pocketing on a trade. It is here, where the elements which cause slippage and how to reduce it become important.

Use of the best proprietary trading firms is one way to make sure you do not get affected by slippage on your trades. They have access to the deep liquidity pools so spreads are tight and slippage is minimal. Tap here to enjoy tight no slippage trading.