Uh oh… There’s that dreaded ‘s word’ that traders and their forex broker doesn’t want to discuss. If they have any claims to being labelled the best forex broker however, they will help to educate their traders that slippage is in fact a fundamental part of real trading and the term has in fact been hijacked by online marketers to suit a market making forex broker agenda.
This blog post will discuss the topic of slippage and then go into detail about why someone laying claim to the best forex broker title, will see their clients’ orders slipped during times of increased volatility, and that this will actually be a good thing!
What Does it Mean When Your Forex Broker Says Slippage?
Slippage is simply when an order is executed by your forex broker at a price that is different from the price you requested.
The minds of most forex traders immediately goes to being slipped in a negative direction, but the fact of that matter is that you can also be slipped into the positive.
This is because when an order is sent to a liquidity provider to be filled, it is executed at the best available price. It doesn’t matter if this best available price is below or above the requested price, it is filled regardless.
Examples of Slippage by Your Forex Broker
Let’s take a look at the three different types of slippage on today’s EUR/USD trading:
You attempt to long EUR/USD at 1.1990 and your forex broker fills you exactly at 1.1990.
There is obviously no slippage here.
You attempt to long EUR/USD at 1.1990 and your forex broker fills you at 1.2000.
As you can see, they have filled you at a price worse than what you expected and you have experienced negative slippage.
You attempt to long EUR/USD at 1.1990 and your forex broker fills you at 1.1980.
Wouldn’t you be happy with this?! This is an example of positive slippage and shows that not all slippage by your forex broker is a bad thing.
Why the Best Forex Broker will Slip Orders
If you are choosing to trade with an ECN forex broker then why can’t your orders be filled at exactly the price you requested at that time?
Just remember that for every buyer with a specific price and lot size, there must be an equal amount of sellers at the same price and lot size. If there is ever an imbalance of buyers or sellers, this is what causes prices to move up or down.
So as traders, if we go in and attempt to buy EUR/USD for example at 1.1990, but there are not enough traders willing to sell for that exact price, our order will need to look at the next best available price(s) and execute the order at a higher price, giving us negative slippage.
But of course sometimes the opposite could happen. If there were a flood of people wanting to sell EUR/USD at the time our order was submitted, we might be able to find a seller willing to sell them at a price lower than what we had initially requested, giving us positive slippage.
Trade forex with only the best forex broker. A true ECN forex broker such as Vantage FX.
Source: Vantage FX Blog