The pros and cons of slippage: 5 ways how to resolve this issue

You open your favourite MetaTrader 4, and see uptrend of the currency pair (not matter what). Without hesitation, you open a trade at a price 1,1516, but… the trade is opened at the price of 1,1519! First thought — the machinations of the broker. Of course, the broker is not beneficial to the trader has opened a profitable position, because it is actually his potential loss. However, it is not so simple…

Slippage of orders: the causes and nature of it

As I said earlier, there are two types of brokers — brokers that truly bring the client into international markets and earn money only on the spread (but there are initial Deposit — $ 1,000. USA), and dealing centers. DC — the company that put the trader real quotes, but in fact the market transaction do not take acting as a counterparty. If the trader earned on operations, dealing desk loses money, and vice versa. Of course, slippage of orders will seem a fraud on the part of DC, but it’s not true:

It makes no difference for dealing center whether the position opens sooner or later, or whether it will get less loss or more. If the company is “kitchen”, then you simply take the entire deposit, not “bothered” in such trifles, as the later opening of a position;
it is unlikely that “kitchen” which is aimed at long-term work with new customers is so primitive to fool the trader. Too clearly. Much better to cheat the customer with a special add-in in the terminal.

Now imagine another situation. There is a glass, which reflects the value of the asset. For example, there is an offer of 100 lots at the price at 1.3145, 50 lots — 1,3146, 74 lot — 1,3147, 11 lots — 1,3148, etc. Assume that the price at 1.3145 satisfies you, you press the treasured button to buy, but don’t get the expected result. Just while you thought, and pressed the button and while the broker executed the order, all 100 lots were acquired by other fast traders. Broker informs you that it’s not scary, because there is a price 1,3146.

There are options when broker requests confirmation for each price. But in a volatile market where every fraction of a second, the answer to such requests is fraught with the loss and the next price step. Because order is automatically opens when it is a counteroffer. And if the application of the first 2 levels already stretched, then the order will open in the near free price. It is logical that you can not make the price 1,3150 — all these settings are specified in the relevant orders.

Slippage of orders can be explained as follows: imagine a situation, when the trend is growing by leaps and bounds, all opened long positions, but the turning point and the trend went down. All traders immediately begin to close long positions, i.e. sell the asset. But the question is: who will buy it, if it is obvious that the asset will fall in price even more? Whatever price the trader is not offered for sale — the return of the bids until the price reaches its bottom.

Hence the conclusion: if you notice slippage, it is not the machinations of the broker, but rather a good indication that your application displays to the international market! Slippage inherent in ECN accounts.

Often the situation when the liquidity providers, which are sent to the broker client application, exit the market at the time of the greatest volatility to protect themselves from losses due to sharp jumps of the prices. This is another cause of slippage is the absence of those who makes application at the best price. Slippage on orders is typically more illiquid currencies (South African Rand, Turkish Lira, etc.), it is necessary to consider when choosing a long-term strategy on exotic assets.

And the last reason is slippage of orders — technical reasons:

slow internet;

network latency between the terminal and the server, the broker and liquidity providers.

Comes to curiosities, especially when large traders place their offices next to the exchanges to shorten the distance of the signal, saving fractions of a second.

slippage in Forex

Ways of dealing with the slippage of orders:

setting the appropriate settings in the terminal. For example, in MT 4 in the new order window there is an option “enable maximum deviation from quoted price”. However, from the brokers servers, there are cases of execution of orders at a price that differs by a greater amount than is specified in the order parameters;
using limit pending orders. If the normal order is activated when the price reaches him, it is a limit order in advance is put on the market by booking some of the liquidity;
trade on high time frames. Slippage of a few points on the M5 will be visible on the daily charts — hardly;
not to trade on news. Trade in the range of 30 minutes before the news and after refers to high-risk strategies;
filter by volatility. If you know that on average, following the release of the slip is 10 points, and you intend to make a profit of 30 points, 30% of the profits you will lose out. Therefore, it makes sense to draw on high volatility news, able to make a profit of 40 points and above.

Basically, this is everything you need to know about the slippage. I hope this information is useful to you. Still have questions — ask.