How to Avoid Forex Slippage
Forex slippage is something that may already be happening to you in your trades without being aware of it. Slippage happens when your trading orders are processed at a price slightly higher than when they were made. For example, if you were buying the EUR/USD currency pair and your ask price is 1.3895; however, when your order was executed, the price had already increased to 1.3897. This means that for a typical lot of 100,000 units, the cost of your order has increased by $20. Although this does not seem like a big amount of money, over the course of a series of trades, if forex slippage is not addressed, these small losses can affect your profits.
One reason that forex slippage happens is when the forex markets are experiencing volatility such that prices are constantly changing. Thus, unless you are specifically trading the news, you can avoid slippage by not trading during these periods of high volatility. You can look at forex calendars to determine when the markets might experience volatility, such as when there is an impending announcement of an interest rate cut that might cause investors to react by buying a particular currency. There are also so-called dead hours during which you might experience slippage and you should avoid trading during these hours in order to reduce the risks of re-quoting.
For example, if you set your stop loss at 1.2549 but the exchange rate suddenly falls to 1.2540. Your forex broker will not process your stop loss order at the level you set, but rather at the next available price.
There are several ways that you can avoid forex slippage. One way is to use a service that allows you to compare slippage rates between the different brokers so that you can sign up with one that has the lowest rates of slippage as measured in pips. Another is to use a broker that has an Electronic Communications Network that transmits your orders directly to the markets, allowing you to trade at real-time prices with minimum slippage. You can also avoid slippage by specifying the price at which they want to buy the currency, rather than using market orders, which process your orders using the best prices available.
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