Slippage in Forex Trading
When you start trading Forex, you are flooded with a number of new terms. One that you will definitely find is what is known as “slippage.” Simply put, slippage is the difference between the price you see and the price you pay. For example, you might see yourself in the EUR / USD pair with the price requesting 1.0347 when you press the button. However, you notice that you are filling in 1.0349. This is what will be skid, with two pips.
That is not necessarily evil
The fact that you are slipping on a trade is not necessarily a bad thing. Unfortunately, in the past there were a number of Forex brokers who would take freedom with their clients. This is long before currency trading becomes much more common, and may be regulated in large countries. After all, even places like the United States are a little behind behind when it comes to investor protection on the Forex market, because it is an explosion of sudden interest that makes many regulators off guard. In addition, this is a market that is not centralized, so it is very easy to see how difficult it is for regulators to get the whole situation.
Fast forward to today, and most Forex brokers are tightly regulated. In fact, if you work with an unregulated Forex broker, you must immediately withdraw your money. Then put your money on a broker that is more reputable.
While someone can argue that it’s very tempting to sneak your customers every time. They try to trade forex. In fact most accounts are not large enough to make the risk acceptable to brokers even if they are not honest. The fines incurred by several regulatory bodies on brokers over the past few years have been enormous. This has drastically cleaned the industry. With an average retail account of around $ 2500 in the United States. A few cents here and there will be worth millions of dollars that bro will face. Research shows that accounts around the world are roughly the same average size. Mathematics will not work.
Most of the time, there is a very easy explanation.
I would bet that more than 90% of the time I read some types of negative reviews online. A review of slippage in brokerage companies, it has to do with news trading. Trading news is a poor game, and even though you can sometimes be very lucky.
You need to understand that liquidity is a major problem. That is, there aren’t many orders. So for example, if you want to buy Japan Yen, there must be someone who wants to sell it. When you make a market order, you tell the broker that you want to buy Swiss francs at the best prices. What do you think it means if the best price is three pips away? Exactly. You just bought Japan Yen three pips from the price you see. This has nothing to do with brokers, they are only there to match orders. If there is no one there who sells Japan Yen to you. Of course, according to the amount you want, they only facilitate the order you give them.
During normal trading, slippage almost never happens. This is because the Forex market is the most liquid in the world. There are some rather thin pairs that tend to slip more than others. For example, if you trade something like a USD / JPY pair. Most likely it will not have a volume of one of the main pairs such as the CAD / USD pair. (This is why spreads are higher for this pair.)
If you don’t want to slip when trading, you can enter the order limit. Then tell the broker that you are willing to pay this price or better for the currency. If the market passes your price, you will not be fulfilled. At least you haven’t paid more than you want.