Slippage: What It Means in Finance, With Examples

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When investors hold positions after markets close, they can experience slippage when the market reopens. It happens because the price may change due to any news event or announcement that could’ve happened while the market was closed. Market orders are transactions to be executed as quickly as possible, whereas limit orders are orders that will only go through at a specified price or better. Forex slippage occurs when a market order is executed or a stop loss closes the position at a different rate than set in the order. Slippage refers to the difference between the expected price, and the actual price at which a trade is executed. A VPS is a virtual machine to host your trading platform and runs your trading strategies.

Financial Theories

With IG, if a limit order is triggered it will only be filled at your pre-specified price or one that is more favourable for you, as explained in the next section. Unlike other types of stop, guaranteed stops are not subject to slippage and will therefore always close your trade at the exact level you specify. For this reason, they are the best way to manage the risk of a market moving against you. However, it should be remembered that unlike other stops, guaranteed stops will incur a premium
if they are triggered. With IG, however, so long as the difference in price is within our tolerance level, your order will be filled at the original price requested. If it falls outside this tolerance level, it will be rejected so you can decide if you want to resubmit your order at the new price.

• Market orders are one of the order types that are used to enter or exit positions.
• The Max slippage feature is available for Market type buy/sell orders.
• These types of events can move markets significantly and lead prices to jump around.
• Limit orders and stop-limit orders (not to be confused with a stop-loss) are often used to enter a position.
• We’re also a community of traders that support each other on our daily trading journey.
• Although they too can suffer a little gap in the execution, they are less common than in market orders.

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How does slippage occur?

This risk increases in situations where market fluctuations occur more quickly, significantly limiting the amount of time for a trade to be completed at the intended execution price. The most desirable type of slippage is positive slippage, which occurs when an order is filled at a lower-than-expected price. This can occur when high demand drives up prices, causing orders to be filled faster than expected. Positive slippage can benefit traders by increasing the potential profits on a position. Another way to reduce the effect of slippages on your trades is to trade in less volatile markets.

Price slippage is the term that describes instances when traders have to settle for a different price than what they initially requested due to the underlying market changing in value quickly. Using a stop-loss limit order will cause the order to fill at the price you want unless the price is moving against you. Your losses would continue to mount if you couldn’t get out at the price specified. This is why it is better to use a stop-loss market order to ensure the loss doesn’t get any bigger, even if it means facing some slippage. When setting a stop-loss (an order that will get you out when the price is moving unfavorably), you might use a market order. That would guarantee an exit from the losing trade but not necessarily at the desired price.

Slippage and the Forex Market

Since the participants are fewer in markets with low liquidity, there is a wide time gap between the placement and execution of an order. The volatile markets experience quick price movements, even quicker than filling an order. Hence, the price of an asset may change during the time gap, which results in slippage. In financial trading, slippage is a term that refers to the difference between a trade’s expected price and the actual price at which the trade is executed. Slippage does not denote a negative or positive movement because any difference between the intended execution price and actual execution price qualifies as slippage.

As a day trader, you don’t need to have positions before those announcements. Taking a position afterward will be more beneficial as it reduces slippage. Even with this precaution, you may not be able to avoid slippage with surprise announcements, as they tend to result in large slippage. Two disadvantages of using a limit order are that it only works if the price reaches the limit you set, and if there is a supply of the stock available to buy at the time it reaches your price.

There is always a certain, albeit very short, time between each of your clicks to open/close a position (or to stop-loss, take-profit, and other pending orders). The length of this time then often determines the size and nature of the slip (whether it’s positive or negative). The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. 72% of retail client accounts lose money when trading CFDs, with this investment provider.