What is slipage in forex and how it occurs is one of the issues that many investors have no knowledge of. However, an important part of forex complaints is about the slippage problem. While looking at comments about forex brokers on many forums, we see complaints about slippage. Because it is one of the most frequently used methods of scam forex brokers. At the same time, one of the ways to understand whether a forex broker is scam is slippage. I decided to write slippage to inform investors about this issue. Let’s look at it together.
Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. Slippage is usually associated with the economic calendar. Because when important economic data is disclosed prices move very fast. It is already clear when economic data will be disclosed. You can see this by looking at economic calendar. All investors see it. Therefore investors use market orders. For example; as an investor, I can say that if the economic data is bad, the prices fall to a certain level. After this price level, we enter the bear market and the downtrend starts. So I can use market orders such as buy limit, sell limit, sell stop etc.
There are thousands of investors who make similar decisions. These investors can also enter the market for the same price levels. When data is disclosed, prices move so fast that some price levels never occur. In such cases, a gap is occur. Therefore, the market order remains pending. After the gap is over, the order is placed at the first price level. Therefore, orders can not be realized at the price you want. You can better understand what slippage is by reviewing the chart below.
Let’s create a slippage scenario. Let’s say I’m trading on EURUSD as a forex trader. I entered the buy order when EURUSD at 1.1810. I put a take profit order for EURUSD price at 1.1880. But the price moved so fast that it reached 1.1887. The price of 1.1880 is not available. Therefore, orders will be executed from next available price at 1.1887. In this case, you’re 7 pips more profitable. This is called positive slippage. Because it is positive for the investor.
1.1887-1.1880= +7 pips
I entered the buy order when EURUSD at 1.1810. I put a take profit order for EURUSD pricea at 1.1880. But the price moved so fast that it reached 1.1887. The price of 1.1880 is not available. Therefore, orders will be executed from next available price at 1.1887. In this case, you’re 7 pips more profitable. This is called positive slippaje. Because it is positive for the investor.
However, a scenario like this could also happen. After I entered the buy order, I entered take profit and stop the loss markets order. Buy order is at 1.18.10, take profit order at 1,1880 and stop loss order 1,1760. Then the price suddenly began to fall so fast that the price was not available at 1.1760. In this case, the order will be executed at the first available price. Let’s call it 1.1754. You lost 6 pips more than you expected. This is called negative slippaje.
1.1754-1.1760= -6 pips
Slipage can be observed in almost every forex broker. Because it is inherent in the market. The price has to be the buyers and the sellers in order to occur. Sometimes buy and sell orders may not match each other. In such cases slipage occurs. But it should not happen often. If you often encounter slippage problems and all or most of them are negative slippage, move away from the forex broker you are working with.