Reasons and consequences of forex slippage
Forex slippage is a common problem that prevents many speculators from achieving the desired financial result.
It is a discrepancy between the price of opening a new position and the value that the trader saw when sending the order. In other words, the speculator sends a bid at one price, but the rate changes during the time the signal is received, resulting in an order being opened at a completely different price.
Such a situation may arise due to the fault of the broker, Internet provider or as a result of too high speed of the trend movement.
Forex trader loses some of his profit because of slippage. As a rule, these are just a few points that matter only in short-term trading. However, it is very unpleasant to lose this part of profit when trading in large volumes. Most Forex brokers allow traders to set the maximum allowable slippage parameters in the trading terminal. In case of a large discrepancy between the execution price and the one specified in the quote, the order will simply not be executed.
The solution to this problem depends on the cause of the problem. There are the following ways to prevent slippage:
1) If a trader is confident in the quality of his Internet connection and there is no fast trend on the market, the problem arises due to the fault of the brokerage company. In this case, you can either choose another dealing center for cooperation or switch to another variant of order execution. Slippage often appears when working with cent accounts, it may disappear when switching to the standard type of accounts.
2) If the reason for slippage is poor Internet connection, you just need to change your ISP. However, most often, if the Internet is slow, the order is not executed at all due to changes in the current price.
3) When the fast trend market is dominated by a few tens of points, the rate can change in just a couple of seconds. In this case, the system is unable to execute the order because all signals are received late. To solve this problem, you can use pending orders, which will work in case of a sharp trend movement.
Currency speculator should know that if the Forex broker indicates in trading conditions the execution of orders on the system Instant Execution, then the price slippage should not occur. This option implies precise execution of orders or refusal of the operation. In case of price mismatch, the trader can decide for himself whether or not to arrange a new rate.