Working Towards a Positive Forex Slippage or Price Improvement
If you think that forex slippage will always go against your favor, think again. If you know how to go about it properly, then you probably have nothing to worry about.
Your broker might be feeding you the usual notion that slippage is something to be dreaded about. But the thing is, it is something that naturally occurs within the foreign exchange trading market. If it recurs at a regular basis, then dreading or fearing it will be a pointless thing. The best thing that a foreign exchange trader should do is to deal with it accordingly. By now, you should know that forex slippage goes in patterns that can be predicted and analyzed.
Real foreign exchange market trading experts usually define slippage as a pretty normal thing in the trading industry that is as fluid as the forex market. Indeed, there are quite a big number of occurrences wherein this has been noted to go against traders. But if that is the case, then, there must be a way that this can be working in your favor. To reiterate, there is nothing to be afraid of when you speak of forex slippage. With proper education, training, and analysis techniques, you will probably survive it and turn the table around.
Simply, slippage can be defined as the gap or difference between the price of the order and the price of the execution for a particular transaction. The price of the order is usually dictated by the buyer while the price of the execution is pretty much dictated by the seller. So if we will look into a specific example, say, you are to buy a single lot of EUR/USD at a market price of 1.4303 (order price). However, the price of the execution is at 1.4308. in pips, the price difference is at -0.5 pip. To convert this to actual forex slippage, then you have a value of -5 US dollars. The negative value indicates that you lost the amount.
Take note that such a loss can occur anywhere. Even a trader who uses an electronic communication network broker can possibly lose such an amount especially if the prices go out of hand or if it is fluctuating in a very fast manner. Well, it is rather pointless or even stupid to place the blame on the market price fluctuation, speed of the network, or volatility of the market. Since you can actually do something about it, then who’s actually to be blamed?
But instead of blaming yourself, you actually have another option. You can use forex slippage to your advantage. If you will only be able to reverse the situation in the given example, the scenario will probably change. If you have the order price at 1.4303 and the actual execution price becomes 1.4298, then you will have an income from the positive slippage.
Positive slippage, commonly known as price improvement is one of the terms that you should include in your vocabulary. This is a scenario that you should always aim for. This way, you will not say that forex slippage is always something bad. Indeed, it can work in your favor.
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