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If you’re a forex trader, slippage is something you need to be aware of. Slippage is the difference between the price you expect to get for a trade and the price you actually get. It can be a major source of losses, especially if you’re not prepared for it.
In this article, we’ll discuss what slippage is, how it can affect your trades, and what you can do to avoid it. By following these tips, you can help to protect your profits and improve your overall trading performance.
What is Slippage?
Slippage occurs when the price of a currency pair moves between the time you place an order and the time the order is executed. This can happen for a number of reasons, including:
- Market volatility
- News events
- Brokerage delays
When slippage occurs, you may end up getting a worse price than you expected. This can be particularly frustrating if the market is moving in your favor and you miss out on potential profits.
The Impact of Slippage
Slippage can have a significant impact on your trading results. Even a small amount of slippage can eat into your profits, especially if you’re trading with a small account. In some cases, slippage can even cause you to lose money on a trade that you would have otherwise won.
Here’s an example of how slippage can affect your trade:
Let’s say you want to buy EUR/USD at 1.1000. You place an order to buy 10,000 units of EUR/USD at this price. However, by the time your order is executed, the market price has moved to 1.1005. This means that you will end up buying EUR/USD at a price that is 5 pips worse than you expected.
If you’re trading with a small account, this 5-pip slippage could represent a significant loss. In this example, you would have lost 50 euros on your trade. However, if you were trading with a larger account, this loss would be less significant.
How to Avoid Slippage
There are a number of things you can do to avoid slippage and protect your profits.
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Trade during periods of low volatility
Slippage is more likely to occur during periods of high volatility. This is because the market is moving more quickly, and it can be difficult for brokers to keep up. If you can, try to trade during periods of low volatility, such as during the overnight session or during the weekends.
Use a reputable broker
A reputable broker will typically have better order execution and will be less likely to experience slippage. When choosing a broker, be sure to read reviews and compare their order execution speeds.
Trade with a small lot size
The larger your lot size, the more likely you are to experience slippage. This is because larger orders are more difficult to execute quickly. If you’re new to forex trading, start by trading with a small lot size until you get a better understanding of the market.
Use limit orders
A limit order is an order to buy or sell a currency pair at a specific price. When you place a limit order, your order will not be executed unless the market price reaches your specified price. This can help to protect you from slippage.
Be prepared for slippage
Even if you take all of the precautions above, there is still a chance that you will experience slippage. It’s important to be prepared for this and to have a plan in place for how you will handle it.
How To Avoid Slippage In Forex
Conclusion
Slippage is a common occurrence in forex trading, but it can be minimized by following the tips above. By reducing slippage, you can help to protect your profits and improve your overall trading performance.
To engage further with the topic of slippage in forex trading, consider joining our forex trading community or attending a webinar on the subject.
