Slippage – Fill or Kill

One of the first things a trader will ask a broker is if there is slippage? Slippage is what all traders try to avoid but due to the unexpected volatility of the FX market it is sometimes inevitable.

Slippage refers to the difference between the expected price of a trade, and the price the trade actually executes at. This means that the orders are not filled at the desired price!

Slippage occurs in different situations. Market volatility causes unpredicted volatility so it’s difficult to fill an order; the broker then finds the next similar price to execute your trade.

In slippage, it may also depend on the broker’s liquidity and its ability to fill the orders. Orders need to be filled in order to make a gain. Let’s keep in mind that the market is composed of buyers and sellers, so, when you want to make a sell, there has to be enough buyers at that desired price level in order to maintain the expected price of the trade. If there are not enough buyers thenslippage occurs!

An imbalance of buyers and sellers will cause prices to move up and down. Slippage is not always negative, it can also be positive. So imagine that there was a flood of people wanting to sell their currency at the time the order was submitted, a seller could be found who was willing to sell them at a price lower than what was initially requested, resulting in positive slippage.

Slippage cannot be 100% controlled, but the following can be created to help curb it.

Limit Orders

These can only be filled at a requested price or better, so if the best available price is worse than the limit price, then the order will not be filled, it will be killed!

Market Range Orders

This allows you to set an acceptable price range ( in pips) to execute market orders. The order will only be filled within the range selected, otherwise it will be cancelled and no trade will be opened. This limits the amount of slippage your order could succumb to.

Slippage cannot always be avoided, but with the help of some of the above tools, the orders you place will be filled and not killed!