Slippage in the Forex market occurs when the execution price of an order differs from the price the trader initially expected. This usually happens in conditions where the market experiences high volatility or when there is not enough liquidity to execute the order at the desired price.
In Forex trading, prices constantly fluctuate, and when a buy or sell order is placed, the execution price may differ from the originally requested price at the moment of order fulfillment. This difference is known as slippage, which can be positive or negative.
Positive slippage occurs when an order is executed at a better price than the trader’s requested price, making the trade more profitable.
Negative slippage happens when an order is executed at a worse price than the requested price, causing the trader to incur a greater loss.
How Does Slippage Occur?
When a trader opens a trade, the trading system first checks whether there is enough liquidity at the requested price, meaning a sufficient number of buyers or sellers. If there is enough liquidity, the order is executed at the requested price. However, if the price changes at the moment the order is placed, the trade will be executed at the closest available price. This price difference is called slippage.
Slippage Calculation Formula
To calculate the amount of slippage, the following formula can be used:
Slippage (in pips) = (Execution Price – Requested Price) × 10,000
For example, if a buy order is placed at 1.2000 and executed at 1.2003, the slippage amount would be:
(1.2003 – 1.2000) × 10,000 = 3 pips slippage
What is Slippage tolerance?
Slippage Tolerance refers to the percentage of price change that a trader is willing to accept at the time of order execution. In other words, it defines the acceptable level of price fluctuation between placing an order and its execution.
For example, if you set the slippage tolerance to 1% in a Forex broker, your order will only be executed if the difference between the requested price and the execution price is less than 1%. However, if the difference exceeds this threshold, the order will not be executed.
What is Requote?
Requote in Forex occurs when a broker cannot execute a trader’s order at the requested price and instead offers a new price. This situation typically happens in highly volatile markets or when there is a delay in order execution.
In such cases, the asset’s price changes rapidly, and the broker presents the trader with an option to either accept the new price or cancel the order.
When Does Slippage Happen More Frequently?
- High Market Volatility
When major economic news is released or unexpected events occur, prices fluctuate rapidly. In such situations, the likelihood of the trader’s requested price differing from the actual execution price increases.
- Lack of Liquidity
If there are not enough buy or sell orders at the desired price, the order will be executed at the nearest available price where sufficient liquidity exists. This issue is more common in less popular currency pairs or during low volume trading hours.
- Price Gaps
Sometimes, a price gap may occur between two consecutive candlesticks on the chart, especially at the beginning of the trading week or after major news releases. In such cases, orders are executed at the nearest available price, which often significantly differs from the originally intended price.
- Slow Order Execution Speed
If a broker or trading platform has a slower order execution system, the price may change by the time the order reaches the server. This delay increases the probability of slippage.
Difference Between Slippage and Spread
| Spread | Slippage | Feature |
| The difference between the ask price (buy) and the bid price (sell) of an asset. | The difference between the expected price of a trade and the actual execution price. | Definition |
| Broker pricing model and available market liquidity. | High market volatility, lack of liquidity, order execution delays. | Cause of Occurrence |
| Always present in Forex trading and varies depending on market conditions. | During order execution, especially in times of high volatility or major news events. | When It Occurs |
| Depends on the broker type (fixed or floating spread) and is non negotiable. | Can be reduced using limit orders and trading during low volatility periods. | Control by Trader |
| Always a fixed or variable amount, depending on market structure. | Can be positive (better price for the trader) or negative (worse price than expected). | Positive or Negative? |
| A standard cost of trading that must be factored into the trader’s strategy. | May cause a trade to execute at a worse price than expected, increasing unexpected costs. | Impact on Trading Costs |
| Determined by the broker and varies based on account type and market conditions. | Some brokers may introduce intentional delays, but slippage mostly occurs naturally. | Dependence on Broker |
Types of Slippage in Forex Trading
In the following section, we will examine the different types of slippage in Forex trading:
1) Positive Slippage
In positive slippage, the trade is executed at a better price than the requested price. This type of slippage occurs when the market price moves in favor of the trader at the moment the order is executed.
For example, a trader places a buy order at 1.2100, but due to changing market conditions, the order is executed at 1.2095. In this case, the trader purchases the asset at a lower price than expected and gains additional profit.
When there is high liquidity, allowing orders to be executed at a better price; During low volatility periods, where price fluctuations are minimal and When asset prices move quickly in favor of the trader; Positive Slippage occur
2) Negative Slippage
In negative slippage, the trade is executed at a worse price than the requested price. This type of slippage is undesirable for traders as it reduces profits or increases losses.
For instance, a trader places a buy order at 1.2100, but due to low liquidity or rapid price changes, the order gets executed at 1.2110. As a result, the trader buys the asset at a higher price than expected, incurring additional costs.
When does negative slippage occur?
- During high market volatility, such as when economic news or financial reports are released.
- When there is low liquidity, causing delays in order execution.
- In the presence of price gaps between candlesticks.
3) Zero Slippage
In some cases, the order is executed at exactly the same price as requested by the trader. This results in zero slippage, meaning there is no difference between the requested and executed price.
When the market has high liquidity, ensuring quick order execution and In low volatility conditions, where prices remain stable; Zero Slippage occur
Are Brokers Responsible for Slippage?
In situations where the market experiences high volatility or low liquidity, slippage is considered a natural occurrence. For example, during the release of major economic news or in low volume trading hours, prices can change rapidly, causing orders to be executed at a different price than originally requested.
However, in some cases, brokers may take advantage of slippage for their own benefit. This practice is more commonly seen in Market Maker brokers, who act as the counterparty to traders’ transactions. These brokers may intentionally increase negative slippage and delay order execution to generate additional profits.
Difference Between Market Maker and ECN Brokers
- Market Maker Brokers: In these brokers, orders are not directly sent to the market; instead, the broker itself acts as the liquidity provider. Some of these brokers may manipulate slippage by increasing negative slippage to maximize their profits.
- ECN/STP Brokers: These brokers directly send orders to the interbank market, making them less likely to manipulate slippage. However, slippage can still occur naturally due to market volatility, but without any intervention from the broker.
How to Determine If Slippage Is Caused by the Broker?
- Review Order Execution Reports: Reputable brokers provide transparent information about how orders are executed.
- Compare Slippage Across Multiple Brokers: If one broker consistently shows higher negative slippage than others under similar conditions, there is a higher likelihood of manipulation.
- Analyze Broker Behavior During Market Volatility: Trusted brokers ensure adequate liquidity during major news events and do not delay order execution.
How to Prevent Slippage?
The methods to prevent slippage include:
1. Use Limit Orders Instead of Market Orders
Market orders are executed at the first available price, which can lead to slippage. However, limit orders allow traders to execute trades only at a specified price or better, preventing unwanted slippage.
2. Trade During High Liquidity Hours
Slippage is more common during low volume hours and unstable market conditions. To reduce slippage, it is best to trade during major trading sessions, such as London and New York, where trading volume is higher and slippage is less likely.
3. Avoid Trading During Major Economic News Releases
When important economic data such as employment reports, interest rate decisions, and inflation indexes are released, the market experiences high volatility, increasing the risk of slippage. If your strategy relies on precise execution, it is best to avoid trading during these times or at least use a guaranteed stop loss.
4. Choose a Broker with Fast Order Execution
One of the key factors in reducing slippage is order execution speed. Brokers that use ECN/STP technology typically execute trades faster and reduce slippage. Before choosing a broker, it is essential to review trader feedback and evaluate order execution conditions.
5. Adjust Slippage Tolerance Settings in Your Trading Platform
Some trading platforms allow you to set a maximum slippage tolerance level. By defining a specific limit, you can prevent orders from being executed at prices significantly different from the requested price.
6. Use Guaranteed Stop Loss (GSL)
Some brokers offer a Guaranteed Stop Loss (GSL) feature, which ensures that trades are closed at the exact stop loss price, even in the event of slippage. This feature may come with higher fees, but in volatile market conditions, it can protect against unexpected losses.
7. Compare Slippage Across Different Brokers
If you consistently experience negative slippage with a particular broker, consider trying another one. Some brokers intentionally increase negative slippage to their advantage, which can hurt traders. Comparing brokers and reviewing order execution reports can help you choose a more reliable broker.
Impact of Slippage on Forex Trading Strategies
Slippage can have a direct impact on the performance and profitability of trading strategies in Forex. This effect varies depending on the type of strategy, market conditions, and trading style. In this section, we will examine how slippage affects different trading strategies:
1. Impact of Slippage on Scalping and Short Term Trading
Scalping and high frequency trading (HFT) rely on precise and fast order execution. In these strategies, traders aim to profit from small price movements, meaning that even a slight amount of slippage can eliminate potential profits. If negative slippage occurs, scalpers may face losses instead of small gains.
In brokers with slow execution speeds, slippage increases, making it crucial to choose a broker with fast execution and minimal delay.
2. Impact of Slippage on Day Trading
Day traders typically execute multiple trades within a single day, and closing positions before the end of the session is essential. If trades are executed during economic news releases or in low liquidity markets, slippage can increase transaction costs.
Negative slippage can alter the risk to reward ratio, reducing the overall profitability of the strategy.
Day traders often use limit orders to prevent unwanted slippage and control trade execution.
3. Impact of Slippage on Long Term Trading (Swing Trading & Position Trading)
In long term strategies, slippage is less significant compared to scalping and day trading. Traders in this category typically hold positions for an extended period based on fundamental and technical analysis.
If negative slippage occurs at trade entry, the entry point may be worse than expected, but its overall impact is minimal compared to short term strategies.
Positive slippage can enhance trade entry or exit points, leading to higher profits.
4. Impact of Slippage on News Trading
Traders who base their strategies on economic news, financial reports, and macroeconomic data experience higher slippage than other traders.
Slippage is more severe during news events because liquidity decreases and volatility increases.
Even if the analysis is correct, slippage can cause orders to be executed at unfavorable prices, reducing profitability.
How Does Slippage Work in Currency Pairs?
- Impact of Currency Pair Type on Slippage
Not all currency pairs are equally affected by slippage. In general, major currency pairs (such as EUR/USD, GBP/USD, USD/JPY, and USD/CHF) have higher liquidity, resulting in lower slippage. However, minor pairs and exotic pairs usually have lower liquidity, making them more prone to slippage.
Major Pairs: Due to their high liquidity, slippage is generally lower, and orders are executed at more precise prices under normal conditions.
Minor Pairs: These pairs have lower liquidity compared to major pairs, meaning that during low volume periods, they may experience higher slippage.
Exotic Pairs: With lower liquidity and wider spreads, exotic pairs tend to experience higher slippage, making order execution more challenging for traders.
- Impact of Trading Sessions on Currency Pair Slippage
Slippage can vary throughout the trading day, as liquidity and trading volume fluctuate across global trading sessions.
London and New York Sessions (Overlap Period): This is the best time to trade major currency pairs because market liquidity is at its highest, reducing the likelihood of slippage.
Asian Session: Liquidity is generally lower, especially for currency pairs that do not involve Asian currencies. During this period, pairs like EUR/USD and GBP/USD may experience more slippage.
Low Volume Sessions (End of Trading Day): Exotic pairs and even some minor pairs tend to have higher slippage during these hours.
- Impact of Economic News and Market Volatility
Slippage in currency pairs significantly increases during major economic news releases. When a strong economic report or an unexpected political event occurs, a large influx of orders enters the market at once, leading to price gaps and rapid rate changes.
Economic Events That Significantly Affect Slippage:
Central Bank Interest Rate Decisions (FOMC, ECB, BOE, etc.)
Employment Reports (NFP in the U.S.)
Inflation Indicators (CPI)
Major Political and Geopolitical Decisions
Currency pairs that are directly impacted by these news events typically experience higher slippage. For example, during the Federal Reserve’s interest rate announcement, USD/JPY or EUR/USD are likely to experience the highest volatility and slippage.
Slippage and Its Importance in Other Financial Markets
The importance of slippage in financial markets is outlined as follows:
1. Slippage in the Forex Market
In Forex, slippage mostly occurs in low liquidity currency pairs, during major economic news releases, and in volatile market conditions. Traders can reduce slippage by using limit orders, choosing a reliable broker, and trading during high liquidity sessions.
2. Slippage in the Stock Market
In the stock market, the amount of slippage depends on the trading volume and liquidity of the stock. Large cap and highly traded stocks (such as tech stocks in the U.S. market) generally have high liquidity, resulting in lower slippage. However, low value stocks with lower trading volumes tend to experience higher slippage. Additionally, slippage is more likely to increase at market open and close, as well as during earnings reports and financial disclosures.
3. Slippage in the Cryptocurrency Market
In crypto trading, slippage is a major challenge since many cryptocurrencies have low liquidity and experience high volatility. In decentralized exchanges (DEXs), slippage is typically higher than in centralized exchanges (CEXs) because liquidity is dependent on liquidity pools. Using limit orders and selecting high liquidity exchanges can help mitigate slippage in crypto trading.
4. Slippage in the Futures and Commodities Market
In the futures and commodities markets (such as gold, oil, and wheat), slippage often occurs when the market experiences high volatility or reduced trading volume. For example, in crude oil and gold trading, slippage tends to increase during low volume hours or after the release of important economic data, such as inflation reports or central bank decisions.