Understanding the Concept of Forex Slippage
When forex slippage you should do something about it. You should not just be saying yes to your broker’s price offer at all times because it is made to make you experience a lot of losses. Instead, you should know how to wait. Yes, waiting for the point where in the price goes back to original may require your patience and may take some time, but a wise trader knows when to wait and when not to do so. At the onset, in order to survive the changing tides of foreign exchange, you should learn the dynamics of the market.
In many cases, people in the financial trading markets do not give any close attention to the most important aspect of foreign exchange trading. What they do not know is the fact that forex slippage can effectively dictate the amount of losses or profit in the trading market. This is actually the point of integrating this concept in most recent foreign exchange trading lessons for new forex participants.
The first lesson that you should remember in forex is to get a decent broker. A decent broker will help you avoid losing your investment and assist you in damage control operations. They will point out for you that there are pre-existing differences in the prices which most traders fail to notice due to the information overload.
If you still do not see forex slippage as a real threat, then you might need an example. In the following illustration, you will see the direct influence of impact to your foreign exchange trading account. This illustration is not exclusive day traders of different foreign currencies. It should concern anyone who wants to be updated of the real prices in the market currently.
Let us say that you have opened a long position involving 1 standard lot (so that means 100K) on EUR/USD. If you set the ask price at 1.5570 and you press the order button, you will then find out what the execution price is. When the price slips to 1.5560, then it means that the slippage is around 10 pips.
Though the example sounds quite simple, you should realize by now that at such a loss of 10 pips, you are actually losing 100 Euro. Within a day, take note that you can actually make around three trades on the average. If you will be losing the same amount every single time, that will be around 300 Euro a day or 6,000 Euro per month. And that’s because you failed to look closely at forex slippage.
Here’s a fact of life: You cannot avoid slippage. But you can always minimize its effects and influence. How can you do this? You should probably begin with your choice of broker. You should go for brokers with sophisticated techniques and advanced levels of technology. One such example is the Electronic Communications Network Broker which basically allows you to trade via the computer. This way, you will be constantly updated of current market prices in real time.
By choosing to have an edge in terms of technology, you can be sure that you’re not going wrong. Probably, you can spot price improvements (the positive forex slippage) that will help you rake in some profits.
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