How to reduce eroding Forex slippages that rust your Balance?


 

 

Forex slippage is more likely to occur in
times of higher volatility (perhaps due to market events) and it makes a market
order at a specific price impossible to execute. Such times are when large
orders are executed, when market orders are used and when there is not enough
interest at the desired price level to keep the expected trade price.

Forex slippage is neither negative or positive movements,
it is simply the difference between the expected purchase price and actual
executed price. Since the corresponding securities are bought and sold at the
most favorable price available, an order can result differently. In this situation,
most forex dealers will execute the trade at the next best price.  In forex world, the market prices changes
fast and the slippage happens in times of delay between the order placed and
its completion.

Forex slippage is the difference between
the expected filled price of a trade and the actual price filled. In other
words, when your trade is executed at worse price than requested, so it is
“slipping” from the original order price. It happens between the time that a
trader enters the trade and the time the trade is made. It can happen to
everyone in any given trading market; stock, currency, or commodity.

This may be caused by an ineffective
broker, increased liquidity and fast market. The forex market is very liquid
and there are limited amounts of slippage.

Forex
slippage examples:

Positive slippage
an order executed in favorable result

Best available buy price was offered at 1.3440, and before
order was submitted, the order price changed to 1.3430 (10 pips below), then
the order was submitted at the price of 1.3440

No slippage – an order executed without any difference.

Negative slippage
an order executed in less favorable result

Best available buy price was offered at
1.3550 and before order was submitted, the order price changed to 1.3560 (10 pips
above), then the order was submitted at price of 1.3560

When
you enter a position:
use limit orders or stop
limit orders

These order types will minimize the Forex slippage,
because you are setting up the price in which you would like to buy or sell.
Preferably, you still need to plan your trade before using limit or stop limit
orders while entering positions. Also, using limit orders means you are going
to miss lucrative opportunity, but you will avoid slippage when getting into a
trade.

When
you exit a position:
utilize both market order and
limit order properly.

If the trade is moving in the direction you
expected, place limit order at the specific price.

If the trade is moving in the direction you
do not want and when you place stop loss, use a market order. By doing so, you
will be immediately guaranteed to exit from the losing trade.

Aware
of what’s coming

If you’re a trader, there are major news
events and announcements that is worth noting in your calendar. FOMC
announcements, a company’s earnings announcements, and etc. When these big
events take place, you do not want to expose yourself to expected slippage. If
you trade during major announcements and you get slippage on your stop loss,
you’d be in unspeakable despair.

There are possible slippage occurrences
when the market is thinly traded. When doing so, you should trade forex pairs
with ample volume, so you can reduce the possibility of slippage. The most
liquid and active time for most currency pair is when London and/ or the US
market is open.

It is impossible to completely avoid Forex slippage,
but similar to spread or commissions, it is a cost you need to endure as a
trader. Think of it as a small amount of token you pay for being the player in
Forex.


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