What is Slippage?

When trading Forex, you may notice a small variation between the price you expect and the price you get (the price when the forex trade is completed). When it happens, it’s called a Slippage. As a Forex trader, it’s a typical occurrence that may work in your favor or against you.

Forex market volatility is one of the primary causes of slippage. When a market has a lot of volatility, it usually indicates there’s not a lot of liquidity and prices vary a lot. When there isn’t enough FX liquidity to fill an order at the specified price, this impacts Forex traders. The liquidity provider will execute the deal at the next best price if this occurs.

Slippage can also be caused by a lack of execution speed. This is the speed at which your Electronic Communication Network (ECN) can perform your transaction at the price you choose. Faster execution times can make a difference when market prices change in fractions of a second, especially on big deals.

Examples of Forex Slippage

Assume that the AUD/USD rate was 0.9010. After analyzing the market, you conclude that it is on the rise and enter a long position on one standard lot at the current price of AUD/USD 0.9050, with the expectation of executing at the same price.

The market continues to follow the trend, but it swiftly moves past your execution price and up to 0.9060 — in less than a second. As your estimated price of 0.9050 is not currently available in the market, you will be provided the next best available price. For the sake of illustration, let’s say the price is 0.9045. Positive slippage would occur in this case: 0.9050 – 0.9045 = 0.0005, or +5 pips.

Let’s imagine if the opposite happens, your deal was executed at 0.9055. Negative slippage would then occur: 0.9050 – 0.9055 = -0.0005, or -5 pips.

Slippage can happen with any form of order, including Stop Loss, Take Profit, Buy/Sell Stops, and Buy/Sell Limit Orders. Since HotTrades uses market execution, we can’t guarantee such orders.

Since we operate under Market Execution, this means we won’t be able to fill a Forex order that no longer exists. If the price you requested is no longer available, your order will be completed at the current market rate by our liquidity providers.

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