When you first start trading on the forex market, you must become more familiar with several technical phrases. One such phrase is "Slippage", which you do not encounter when utilising sample accounts to learn about the market. To minimise trading losses, planning your market actions carefully is crucial.
Every trader has slippage at some point, whether they are dealing in futures, Forex Exchange (FX), or stocks. It occurs when you enter or exit a trade at a price different from what you anticipated. When a trader utilizes market orders, slippage happens. One of the order types used to enter, or exit positions are the "market order". Traders employ limit orders rather than market orders to assist in eliminating or reducing slippage.
A limit order can be filled at the price you want or above. It won't load at a worse price than a market order. By utilizing a limit order, slippage is avoided. Therefore, you can say that slippage can either be a welcoming surprise or an unexpected bonus— spending on the direction it takes.
Find more about Slippage Order at Valiant Markets, a new market navigation platform for millennials, and learn How To Handle Forex Order Slippage Effectively. So let's begin!
What Is Slippage?
Slippage is a phrase used in financial trading to describe the discrepancy between a trade's anticipated price and the price at which it is performed. It is a phenomenon that happens when large orders are placed at times of high volatility or when there is not enough purchasing interest in an item to maintain the projected transaction price.
The lag can bring this on between when you place an order and when it is carried out. Other traders can hedge their risk or take a contrary position. This may cause your deal to reach the market at a lower price than you had anticipated.
⦁ Positive slippage means that trade was performed at a higher price than the price you had set.
⦁ Negative slippage signifies that a deal was executed at a price different from the price provided in the order.
Some aspiring forex traders who want to start trading may find the slippage concept terrifying. However, contrary to common belief, slippage may not necessarily be unintentional. One can reduce it or even use it in their trading strategies.
Negative slippages regularly could be a symptom of poor choices. Your net profits will be greatly impacted if you execute an order at a price differential of more than ten pip.
Reducing Forex Order Slippage Effectively
There are two basic techniques to minimize slippage and limit the spread between entry and exit positions, even though it is hard to avoid it:
A. Changing The Nature of Market Orders
Limit orders are a primary means of avoiding the hazards associated with slippage. This is because a limit order will only be filled at the specified price. Limit orders are filled at Valiant Markets at predetermined prices or higher ones, reducing the possibility of negative slippage when utilizing market orders.
B. Trade Extremely Liquid Markets with Little Volatility
Trading is non-volatile and enables traders to reduce the risk of slippage. Smooth price action indicates that the price changes are not erratic and is a hallmark of low-volatility markets. Contrarily, highly liquid markets have many active participants on both sides, increasing the probability that an order will be executed at the desired price.
Use Virtual Private Server (VPS)
Additionally, traders can use VPS services to benefit from the greatest execution despite any technical hiccups like lapses in internet connectivity, power outages, or computer malfunction.
Conclusion
Using Limit orders rather than market orders is the primary method traders use to Handle Forex Order Slippage Effectively. Additionally, traders should prepare for high slippage around the release of important financial news events. Ultimately, day traders should steer clear of engaging in any significant trades at these times.
