If you’ve ever placed a trade and noticed that the execution price differs from your expected price, you’ve experienced slippage. While it’s common in trading, many beginners don’t fully understand why it happens or how to manage it.
This guide explains what slippage is, the main causes, and how traders can minimize its impact.
1. What Is Slippage?
Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed.
- Positive Slippage: You get a better price than expected
- Negative Slippage: You get a worse price than expected
Slippage usually occurs during high volatility, low liquidity, or when market conditions change rapidly.
2. Why Slippage Happens
Slippage happens because of delays between the time you place an order and when it is executed in the market. Key reasons include:
- Market Volatility: Rapid price movements during news events or economic announcements
- Low Liquidity: Not enough buyers or sellers at your desired price, common in smaller currency pairs or off-market hours
- Order Type: Market orders are more susceptible to slippage than limit orders
- Broker Execution: Some brokers use dealing desks or delayed execution, which can increase slippage
- Types of Slippage
- Positive Slippage: Occurs when your trade is executed at a more favorable price than expected.
- Negative Slippage: Occurs when your trade is executed at a less favorable price than expected.
While positive slippage can improve profits, negative slippage can increase losses.
3. How to Minimize Slippage
- Use Limit Orders: Set a maximum or minimum price at which you’re willing to enter or exit a trade.
- Trade During High Liquidity: Execute trades when markets are active and volumes are high.
- Avoid Major News Events: Volatility spikes during announcements can cause significant slippage.
- Choose a Reliable Broker: Brokers with fast execution speeds and transparent trading conditions reduce the risk of slippage.
- Slippage and Trading Costs
While slippage is not a traditional fee, it affects the effective cost of your trade. Even a small difference per trade can add up, especially for day traders or scalpers who trade frequently.
Understanding slippage allows traders to plan better risk management and avoid unexpected losses.
Conclusion
Slippage is a natural part of trading, caused by market volatility, low liquidity, order types, and broker execution. While it can’t be eliminated completely, using limit orders, trading during high liquidity periods, and selecting reliable brokers can minimize its impact.
Trade smarter—understand slippage and read verified broker reviews on Broker Reviewers to protect your funds and optimize your trading experience!
Frequently Asked Questions (FAQs)
Positive slippage improves your trade price; negative slippage worsens it.
Yes, but it’s more common in volatile markets like forex or leveraged CFDs.
No broker can completely eliminate slippage, but brokers with fast execution reduce its likelihood.
Use limit orders, trade during high liquidity periods, and avoid placing trades during major news events.
Swap fees primarily apply to forex and leveraged CFD positions, not standard stock investment
