Slippage is a term that is used to define the difference between the estimated value of a trade and the actual trade value on which it is executed. During the periods when markets are more volatile, the events of slippage can be witnessed in the market more commonly.
Slippage is more common in both Forex and stock trading. However, there can be different situations for slippage to take place in both types of trading.
In Forex, the slippage can be witnessed when a stop loss takes place at a rate which is far below than the one which is originally set in the order. The currency market sometimes witnesses unexpected volatility due to sudden events, news or political and financial developments, and this is the time when slippage may occur in the Forex market.
When the market is more volatile, it will be impossible to execute trades at a specific price and there could be a large difference of prices. In such a situation, any experienced Forex trader will prefer executing the trade at the next best price and will try to keep the slippage at its minimum.
Avoid the Situation of Forex Slippage
In most cases, a trader wants to avoid the situation of Forex slippage. It could be worse when slippage occurs at the time when a trader wants to open a position.
In the Forex market, the price changes can be quite momentary, and the price at the time of entering the market can be quite different that one actually had observed few minutes or a few hours ago. As a result, a trader may get a different price to enter the market than one it had actually planned. This is a common scenario of the Forex slippage that a trader may witness at the entry level.
Forex slippage can also occur when the Forex market is more dynamic and Forex sessions overlap. In many cases, some bad economic news may also trigger a slippage in the Forex market. If you closely follow the market news, you may be able to avoid the Forex slippage. Another way to avoid the Forex slippage is to trade using delayed orders.
However, many Forex traders know how to use slippage to their advantage. A slippage can prove very helpful in getting a better closing price, when a trader exits the market using delayed orders of profit taking.
One good way of avoiding Forex slippages is to open positions before the market becomes tremendously active. Even if slippage occurs, a trader can wait until the market gets back to the planned price point. This is the time to place the market order to avoid slippage.