What is a slippage?
Slippage refers to the deviation between the order transaction price and the trader's order price, resulting in additional losses or profits in the transaction.
In the trading market, only when the transaction volume of the buyer and seller match the order price, the order will have a chance to close. Low market transaction volume, insufficient liquidity, or emergent news, major international events, etc. will cause the transaction volume and price of the buyer and seller to fail to match, so that the order cannot be traded at the originally expected price, but will wait until the market appears Only the best available price can be completed.
But this does not mean that slippage is definitely a bad thing. According to the direction of price fluctuations, slippage can be divided into positive slippage, negative slippage and no slippage.
Let's take the EUR / USD purchase price at 1.11600 as an example:
- Positive slip: The bid price suddenly changed from 1.11600 to 1.11500, and the new quote was 10 points lower than the original offer, so it was traded at a better price of 1.11500.
- Negative slip: The bid price suddenly changed from 1.11600 to 1.11700, and the new quote was 10 points higher than the original offer, so it traded at the price of 1.11700.
- No slippage: Orders are traded at 1.11600, exactly the same as our quotation.
In addition, from another perspective, the appearance of slippage just proves that your transaction is executed in the real market, not in an artificial market where the price is manipulated.
Why do there are slips?
Slippage is something many traders are unwilling to encounter, but this is an unavoidable normal phenomenon. There are many possibilities for slippage. The following are two common causes:
- Network latency
After the trader places an order on the MT4 platform, the order is sent to the market via the server to execute. In the process of transmission, poor Internet connectivity takes more time to successfully deliver orders to the market, and a little more time may cause traders to miss the best price in the market and then hit a slippage.
- Market quotes jump, lack of adequate liquidity
For the foreign exchange market to maintain normal operations, it must have sufficient liquidity. Under normal circumstances, the quotations in markets with sufficient liquidity are continuous and uninterrupted, but when the market fluctuates sharply, it may lead to price failures. If the trader's set stop price or take profit price is just in the range where the quotation is missing, the order cannot be traded at the set stop price or take profit price, only the next latest and best price.