Why slippage occurs and 5 ways to deal with it
“ECN technology without requotes and slippage” – this is the phrase brokers attract novice traders with. Experienced traders know how to check the direct withdrawal of transactions to the interbank market, traders without experience trust a broker at their word and lose money. What is slippage, is it always the broker’s fault, how to minimize the impact of slippage in Forex, read on.
Slippage in Forex: eliminating the causes
Imagine a situation: you see a target level of 1.1517 on an uptrend, open a position, but … The trade is opened much later at 1.1521, which does not correspond to your risk management. The first thought is that the broker is to blame, for it is not profitable for him to share the profit, but not everything is so simple.
As a reminder, there are two types of brokers:
- “Kitchens” that conduct transactions within their system. A trader’s loss is their earnings, but there are many other ways how to deprive a trader of a deposit. For example, simply do not allow money to be withdrawn due to failure to pass verification;
- brokers that bring clients’ transactions to the OTC market to liquidity providers. They make money on margin, so they are not interested in slippage in Forex.
Now let’s imagine a different situation. There are offers on the market to buy an asset at a price of 1.3145 and 1.3148. You are about to buy the asset at the first price, but … The deal does not take place and the broker asks you if you are ready to buy the asset at the higher price of 1.3148. While you are reading the broker’s request and confirming it, this price has already been outbid by faster traders who buy out the entire volume of this level. And this is not the broker’s fault.
Reasons for slippage in Forex:
- weak (slow) internet;
- network delays in the “trader (platform) – broker – liquidity provider” scheme;
- high market volatility and lack of reaction from market makers, which should restrain the rapid rise or fall of the price with the accumulated stocks of the asset.
It is possible that there is a fault of the broker himself, manipulating the quotes, because each case is individual.
- setting the appropriate settings in MT4, in particular “Use the maximum deviation from the requested price”. In a situation where everything is decided by a split second, MT4 will open a deal without a request. However, due to the peculiarities of brokers’ servers, deviations are possible here;
- application of pending limit orders, which reserve part of the liquidity in advance. There are times when they don’t work. In such cases, all questions are to the broker;
- trading on long time frames. Redrawing of indicators, slippage in Forex, price noise – all this will greatly interfere on the M1-M5 timeframes. At hourly intervals and above – hardly;
- not to trade at the time of news release. On a downtrend, there will be a lot of people willing to sell an asset, but few to buy;
- using a volatility filter. If the slippage is 10 points with a planned income of 30 points, then you will not receive 30% of the profit. So you need to work with an asset that can bring 40 points of income.
These basic rules of operation will help to avoid slippage in Forex. If they didn’t help, clean the platform of temporary files or change the broker. Join the discussion of the article and share your own experience!