Contents
Key Takeaways🔑
| →Slippage is the difference between the price at which you want to execute a trade and the price at which the trade is executed. |
| →Slippage can occur in any market, including forex, CFDs, and cryptocurrencies, and can be positive or negative. |
| →Slippage is more likely to occur during periods of high market volatility, and can be reduced by avoiding trading during such times. |
What is slippage? Quick overview.
What is slippage? While trading CFD you can face the slippage effect. Let's take an example. You see that stocks of the company a cost sixty-two dollars and are rising in value.
You decide to open a buyer position at the current price but after the position has been opened you notice that the opening price was 62 dollars 50, not 62. The occurred difference of 50 cents is called slippage.
The slippage effect can be positive or negative. In our example the slippage effect is negative. But if the trade was executed at sixty-one dollars. The difference would be one dollar in your favor and the slippage would be positive.
Slippage occurs when market prices fluctuate quickly or as a market reaction to some breaking news when major events happen as a result the number of buyers or sellers increases.
Heavy trading volumes occur and trades are executed at high speed. So the price requested by a trader at the beginning can be unavailable on the market and a broker offers the trader the next best price.
What means slippage in trading?
Simply put, slippage is the difference between the price at which you want to execute a trade and the price at which the trade is executed. As a rule, such a situation is associated with excessive price volatility in a given asset. In traditional equity markets, slippage can occur when a very large order is executed, but there is no sufficient volume at the price of that order. In this case, the stock exchange executes the order in part at the available prices.
How does slippage affect my trading?
Slippage may have a negative impact on the outcome of the transaction. We generally decide to take a position at the market price presented to us by the platform interface. We click on buy, for example, because we accept the price shown on the chart at that moment. If slippage occurs and it turns out that the order execution price was higher, we lose this price difference.
What is slippage in forex
Slippage can occur in any market at IQ Option. A market order can be executed with slippage. It also happens that a stop loss order can experience price slippage in case of high market volatility. Remember that the broker, in the case of dynamic price changes, always tries to execute your orders at the best possible price, but unfortunately there is no institution that would guarantee the execution of the order only at the price you have assumed.
What is slippage on cryptocurrencies
Slippage will of course also be featured on crypto. These are instruments that are inherently highly volatile, more so than traditional markets. The speed of price changes is worth watching here. If you see that the price on the chart moves dynamically and in jumps, this is not the best moment to open a position. The risk of slippage is higher at such times.
Pros and Cons of Slippageđź“Š
- đź‘ŤPositive slippage can result in better-than-expected trade execution prices.
- đź‘ŽNegative slippage can lead to worse-than-expected trade execution prices, impacting profits.
- đź‘ŤUnderstanding slippage can help traders better manage their risk.
- đź‘ŽSlippage can be difficult to predict and may occur unexpectedly.
| Factors Influencing Slippage | Ways to Minimize Slippage |
|---|---|
| Market volatility | Avoid trading during major news events or economic releases. |
| Low liquidity | Trade during high liquidity periods, such as when multiple markets overlap. |
| Large orders | Break up large orders into smaller ones to reduce the chance of slippage. |
| Order type | Use limit orders to specify the desired execution price, rather than market orders. |
How to minimise the risk of slippage on IQ Option?
You already know what is slippage. It is impossible to completely eliminate price slippage in trading. But it is possible to reduce them.
We have said to ourselves that slippages most often occur with increased market volatility. This in turn is usually associated with the appearance of an important news item or the publication of important data for a given market. The simplest and most effective solution is to limit trading. If you carefully review the economic calendar before a trading session, you will be able to assess which events or reports may have a strong impact on the market. Then, during times of expected excessive volatility, simply take a break.
We wish you a great trading experience.
Q&A Sectionđź’ˇ
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- Q:Can slippage be completely eliminated?
- A:No, slippage cannot be completely eliminated, but it can be reduced by using certain strategies and avoiding high volatility periods.
- Q:How does slippage affect stop loss orders?
- A:Slippage can cause stop loss orders to be executed at a worse price than initially set, potentially leading to larger losses.
- Q:Can slippage be positive?
- A:Yes, slippage can be positive when a trade is executed at a better price than initially expected, resulting in potential increased profits.
- Q:What factors can contribute to slippage?
- A:Factors that contribute to slippage include market volatility, low liquidity, large orders, and the use of market orders instead of limit orders.
- Q:Is slippage more common in certain markets?
- A:Slippage can occur in any market, but it is more common in highly volatile markets, such as cryptocurrencies, and during periods of low liquidity.