In simple terms, slippage is when your order is executed at a worse-than-expected price. It depends on the fact that market conditions may change during the processing of your order. For example, you want to buy EUR / USD at 1.080, but at the time of processing your application other buyers have already bought all the sell-orders at that price. Therefore, if the closest seller is at the price of 1.082, your order will be executed at this price.The difference between these prices is called slippage.
Slippage occurs only if the difference between the expected and real execution prices is low.
In its turn, a requote is your broker’s request to execute your order at a worse price, when the expected price and the real execution price are very different. For example, you want to buy at the price of 1.080, but due to changes in market conditions (important news, breakdown of a strong level of support / resistance, etc.), the nearest dealer is now at 1.090. Thus, you receive a request from the broker that wishes to know if you agree or not to execute the order at new prices.
Traders are fighting among themselves for the best execution price, using quick response capability or automated trading systems that can make trades in a fraction of a second. In addition, during the release of important news, the majority try to move their orders away from the current price to minimize the risk of loss during increased news-volatility.
Is it possible to make money from Forex despite all this? Yes, but you need to know how to reduce the effect of slippage and requotes on your trading:
- Open a transaction using limit orders;
- Close all of your orders 15 minutes before important news releases;
- Open a new transaction at least 15 minutes after important news;
- Trade on M15 timeframe and higher;
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.