A trader can raise a fortune out of the price differences between the actual price and execution price if he knows how to play the foreign exchange trading rules well. Otherwise, he will create a big misfortune out of it especially when the times go rough – specifically when the market experiences periods of extremely high volatility. These are the times when forex slippage is highly likely to occur. Such as upon news release or during market opening.
Forex slippage is spoken of as if it is something evil or unwanted because of the many traders that have fallen as unknowing victims. Slippage is a phenomenon that is not exclusive to foreign exchange. It also occurs in the stock market. Though the definition is shared and common, the context, application, and situation in which it can occur are different for the two classifications of trading.
Usually, forex slippage is experienced when the market suddenly turns volatile. This is something that does not happen every day, but when it does, it is triggered by something that is rather serious. For example, it can be caused by a major news event like pronouncements of major economies or the World Bank. With this, most of the time, the expected price slips and is replaced by something that is unbearable and unprofitable. In order to survive, most foreign exchange dealers try their best to sell their currencies using the next best price, which is not profitable most of the time.
By all means, a forex trader should do everything to be equipped against slippage. It can be very difficult especially because of the fact that it can be unexpected. With that, you may survive by playing it safe or by stretching out your sense of foresight.
You Can Survive – Take Advantage Even – from Forex Slippage
You might think that it is impossible to survive a forex slippage. If you have already grown to believe this, then you believe something that is so wrong. For one, for every bad news there is good news. Every coin has two faces and for slippage, the other side belongs to price improvement.
Perhaps your broker has been telling you that market volatility is all bad. Price improvement will not be possible without sudden deviations from expected prices. If you will be more particular of the details, slippage results in the difference between the currency’s order price and the price of execution for a specific transaction resulting in a negative yeld. If the resulting value is positive, it’s an entirely different story. The first story brings tears and fears, while the second one can bring a trader to greater heights when it comes to forex.
Yes, market volatility and forex slippage can be taken advantage of. If you know the elements of the market well and you know how to play them, then you have a great future ahead of you.