Slippage In Forex Trading
You should know the problem of slippage and how to avoid it if you want to successfully trade the news. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price. Currency prices tend to move very fast during highly volatile market conditions. The risk of slippage is usually very high when trading the news.
Placing stop or market entry orders under such times do not guarantee anything. Slippage is the biggest problem when the market moves fast. These orders do get filled but mostly at different prices than you had intended.
Many market makers will wait till after the big move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.
Before filling your entry order with wide slippage, many brokers will fill your stop loss or take profit order. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.
Lets make it clear with an example. Imagine your profit limit for the EUR/USD is 1.2594. Your long entry stop for EUR/USD at 1.2564! The forex broker may first fill your take profit at 1.2594 and then fill your long entry stop at 1.2604 with a 40 pips slippage.
You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.
Suppose, you had set your long entry stop at 1.2564 and your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544 then fill your long entry stop at 1.2594 with a slippage of 30 pips. So instead of planned 20 pips loss, you now have a net loss of 50 pips due to slippage.
You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.
Many forex traders readily accept the risk of slippage. Most news traders consider slippage as one of the realities of trading the news. However, you as a forex trader should know that slippage can eat up a huge chunk of your profits. In the end slippage can affect your overall profit and loss. Read more in the next article how you can overcome the problem of slippage through the use of stop-limit entry order. - 23204
Placing stop or market entry orders under such times do not guarantee anything. Slippage is the biggest problem when the market moves fast. These orders do get filled but mostly at different prices than you had intended.
Many market makers will wait till after the big move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.
Before filling your entry order with wide slippage, many brokers will fill your stop loss or take profit order. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.
Lets make it clear with an example. Imagine your profit limit for the EUR/USD is 1.2594. Your long entry stop for EUR/USD at 1.2564! The forex broker may first fill your take profit at 1.2594 and then fill your long entry stop at 1.2604 with a 40 pips slippage.
You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.
Suppose, you had set your long entry stop at 1.2564 and your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544 then fill your long entry stop at 1.2594 with a slippage of 30 pips. So instead of planned 20 pips loss, you now have a net loss of 50 pips due to slippage.
You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.
Many forex traders readily accept the risk of slippage. Most news traders consider slippage as one of the realities of trading the news. However, you as a forex trader should know that slippage can eat up a huge chunk of your profits. In the end slippage can affect your overall profit and loss. Read more in the next article how you can overcome the problem of slippage through the use of stop-limit entry order. - 23204
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Know These Forex Broker Games. Learn Forex Trading!
posted by X - Men @ 2:23 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home