Slippage: Why It's Important to Understand It

EnclaveFX Ltd
Mar 09, 2023

"Slippage" is the term used to describe a situation in which an order is filled at a different price than that for which it was requested as opposed to the one requested.”

"The term slippage is used to describe what should happen when a fill price that is expected differs from a fill price that is actually achieved.”

Although slippage can occur anytime there is a difference between the intended execution price and the actual execution price, slippage does not necessarily have to be viewed as a negative event since it can arise wherever there is a difference between the intended execution price and the actual execution price.

A slippage may occur at any time during the delayed processing of a trade order, and it can be attributed to a fast change in market prices that can happen in the period between the time the trade order is placed and when it is completed.

The possibility of slippage is not uncommon during times of high volatility, between times when economic data is released or news is breaking, as well as during the release of economic data.

Due to the liquid nature of the major currency pairs in the Forex market, there is a lesser tendency for slippage under normal market conditions.

It is important to note that the major currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, and NZD/USD.

Limit orders should be placed in order to prevent slippage from occurring, and market orders should be avoided in order to avoid slippage from happening.

Here are some examples of slippage that you may encounter

Consider buying EUR/USD at 1.1050 with a price of EUR/USD.

The price of 1.1050 is displayed on your trading platform, so you click "Buy".

You wanted your buy order to be executed at 1.1050.

Using your internet connection, you send the order to the Forex broker over the internet.

When the broker receives the order, he or she has to verify that you have sufficient funds to cover the new order as soon as the order is received.

After you have taken into account any other open positions you have, you should check that you have enough free margin.

There is a delay in every step of the process, from the transfer of communication to data processing.

Therefore, the live price may have changed between the time the broker sent the original quote and the time the broker can fill the order.

Known as slippage, the difference between the quoted and fill prices is the difference between the quoted and fill prices.

It is possible for there to be no slippage, positive slippage, or negative slippage between the final execution price and the intended execution price.

There will be no slipping

After the order is submitted, the best available buy price that is being offered is 1.1050 (exactly what you requested). The order is then filled at that price.

Slippage in the positive direction

As soon as the order is submitted, the best available buy price changes to 1.1045 (5 pips below your requested price), and the order is filled accordingly.

Slippage in the negative direction

The order is submitted, and the best available buy price being offered suddenly changes to 1.1057 (7 pips above your requested price), the order is then filled at this price of 1.1057.

Slippage can be caused by a number of things

If your orders are not being filled at the requested price, how does slippage occur, and why can't your orders be filled? Buyers and sellers make up a market.

Whenever a buyer wants to buy at a specific price and quantity, there must be an equal number of sellers who want to sell at the same price and quality.

If there isn't an equilibrium between buyers and sellers, then there will be an imbalance in the market.

Prices fluctuate and move up and down because of this, which is what causes the prices to fluctuate.