Financial markets like Forex and cryptocurrency are fast-paced environments where prices can change dramatically every minute. This constant fluctuation keeps traders on edge. However, from another perspective, volatility isn’t necessarily a bad thing—if prices barely moved, there would be fewer opportunities to profit. What traders often fear most isn’t the volatility itself, but the phenomenon known as slippage, which often accompanies it.
In this article, we’ll explore what slippage is, how it occurs, and, most importantly, how you can mitigate its effects in your trading activities.
What is Slippage? A Clear Definition
Slippage refers to the difference between the expected price of a trade—whether it’s a currency, security, or commodity—and the price at which the trade is actually executed.
This usually happens in fast-moving markets where prices change rapidly between the time an order is placed and the time it is filled.
Slippage Examples in Forex Trading
To better illustrate how slippage works, here are three common scenarios:
- No Slippage:
You place a buy order when the best available ask price is 1.3650. Your order gets filled exactly at 1.3650. - Positive Slippage:
You place a buy order, but the best ask price has quickly dropped to 1.3640—10 pips below your requested price. Your order gets filled at this better price of 1.3640. - Negative Slippage:
You place a buy order, but the best ask price has jumped to 1.3660—10 pips above your requested price. Your order is filled at this less favorable price.
It’s also important to distinguish slippage from requotes. A requote occurs when you try to open a trade, but the price has already changed, and the platform asks you to confirm the new price. Slippage and requotes are related—proper slippage settings can help you avoid frequent requotes.
Is Slippage Good or Bad in Forex Trading?
Many traders mistakenly believe that slippage is intentionally caused by brokers. In reality, it is a natural byproduct of real-market conditions.
All ECN accounts experience slippage. If your account is connected—fully or partially—to the interbank market, encountering slippage is inevitable. Rather than viewing it as a crisis, it’s more accurate to see it as a normal market occurrence. In fact, under the right circumstances, slippage can even work in your favor.
How to Avoid or Reduce Slippage in Forex Trading
While it’s impossible to avoid slippage entirely, you can take steps to minimize its frequency and impact. Below are some effective strategies:
1. Choose a Trusted and Reliable Broker
Slippage is common, but abnormally frequent or extreme slippage may indicate an unreliable broker. If you experience slippage in more than 10 out of 100 trades—or more often than with other brokers—it might be time to switch.
Always select a broker regulated by reputable authorities such as ASIC, FCA, CIMA, or FSC.
2. Ensure a Stable Internet Connection
A slow or unstable internet connection can increase the likelihood of slippage. Use a wired connection instead of Wi-Fi for greater reliability. Close all unnecessary internet-consuming applications—especially during high-frequency or scalping trading sessions.
3. Configure Your Terminal Settings
Most trading platforms allow you to set a maximum acceptable slippage level. Orders will only be executed if the price is within your predefined range. This can prevent excessively unfavorable fills.
4. Use Pending Limit Orders
Limit orders allow you to specify the maximum price you’re willing to pay (for buys) or the minimum you’re willing to accept (for sells). These orders help control execution price and are less prone to negative slippage than market orders—especially if your broker offers interbank liquidity.
5. Trade on Higher Time Frames
Slippage is more common in lower time frames (e.g., scalping on 1-minute charts). Switching to higher time frames, such as daily charts, can reduce both the frequency and impact of slippage.
6. Avoid Trading Around High-Impact News Events
Economic and political news often cause sharp price movements and increased slippage. To avoid this, refrain from trading 30–40 minutes before and after major news announcements. Wait until volatility subsides before entering new positions.
7. Filter News by Expected Volatility
If you prefer trading during news events, focus on those that historically cause larger price movements. For example, if a news item typically moves a currency pair by 50 pips instead of 15, the relative impact of slippage may be smaller. By selecting high-volatility news, you can improve profit potential while reducing slippage-related losses.
Which Currency Pairs Have the Least Slippage?
Under normal market conditions, the most liquid currency pairs—such as EUR/USD and USD/JPY—tend to have lower slippage. However, even these pairs can experience significant slippage during high-impact news or extreme market events.
Frequently Asked Questions
What is slippage in trading?
Slippage occurs when an order is executed at a different price than expected. This often happens during periods of high volatility or low liquidity.
Can slippage be positive?
Yes, positive slippage occurs when an order is filled at a better price than requested. This is more common with buy orders filled at a lower price or sell orders filled at a higher price.
How do I avoid slippage when trading?
While you can’t avoid it completely, you can reduce slippage by using limit orders, trading during stable market conditions, and choosing a reliable broker with strong liquidity provision.
Is slippage the same as a requote?
No. A requote occurs when a broker offers a new price due to market movement before order execution. Slippage refers to the difference between expected and actual execution prices.
Does slippage occur in cryptocurrency trading?
Yes, slippage is common in crypto markets due to their volatility and sometimes limited liquidity, especially on smaller exchanges or with low-volume tokens.
What is a normal slippage value?
This depends on the asset and market conditions. For major forex pairs, a slippage of 1–2 pips might be considered normal during active trading hours.
Conclusion
Slippage is a common aspect of financial markets that every trader will encounter. While it can’t be eliminated entirely, understanding what it is and how it works allows you to develop strategies to manage it. By choosing a reliable broker, optimizing your order types, and avoiding high-volatility periods unless you’re prepared, you can reduce its impact on your trading results.
Remember, all trading involves risk. It’s important to educate yourself and use risk-management tools to protect your capital. 👉 Explore more trading strategies to improve your market performance.