When talking about forex, terms like leverage, trading, profits and pips come to the mind. Investors are in a constant strive to make profit and get their best returns on investment. But how does this system work? Well, to just put it, when a trader initiates a position, it passes through a forex demo server present at the broker’s site before getting live in the market. Since the smallest fluctuations in currency prices can cause large differences in profit margins, it is vital to keep a track of certain points which affect the smooth working of a forex server.
Slippage and Latency:
Being highly volatile and liquid in nature, forex market prices undergo random fluctuations. Price volatility between initiating a trade to its getting live are referred to as Slippage while time taken by a broker to open a particular trade is referred to as latency. Slippage and latency occurs due to irregular speed of forex demo server used by a broker.
For example, a trader may want to buy EUR/USD at 1.3580 but due to slippage, the order gets placed at 1.3582. This implies a slippage of 2 pips. Similarly, a trader may order closing an account at 1.3580 while it gets closed at 1.3578. This specifies a slippage while closing an account.
Why does slippage occur?
One of the biggest reasons for slippage to occur is latency. This is entirely technology dependent and relies on the internet connection and speed of server provided by a broker. Once a trader has placed an order, it is sent to his respective broker who processes it before making the order live.
If that broker’s forex demo server shows latency i.e. delays in processing a request, price fluctuations may occur in the time period causing slippage. Latency speed is generally calculated in seconds but some brokers claim to provide speeds of less than a second. While slippage cannot be eliminated totally, use of advanced technology can aid in reducing it to some extent.
How to choose a broker with a reliable forex demo server?
It should be kept in mind that dealing desk brokers who have their own quotations, latencies and fluctuations are unable to provide minimum slippage rates. It is often observed that an investor has placed a trade while the broker takes time to open the position owing to his own interests.
Therefore, to obtain low slippage rates one should always opt for ECN + STP brokers who provide direct access to its liquidity providers. It is known that hedging and scalping require fast execution times. This can be achieved by choosing an ECN (Electronic Communication Network Broker) as it constitutes of a fully automated system.
Moreover, an automated system includes a fast forex demo server which helps in reducing latencies. Lower latencies are directly proportional to higher profits. To simply put it, a 10% decrease in latency rates result in a 10% increase in profit margins.
What can be concluded?
Latency is considered to be a trader’s biggest rival. Lower latency can be achieved with a better and faster forex demo server which is provided by ECN + STP brokers. Therefore, if you are also interested in trading currencies, contact a reliable broker today with fast forex demo server speeds and experience this world of forex trading.
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.