Slippage – the silent way you are losing money from your trading account

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What is slippage?

Slippage is the difference between your requested price when entering a trade and the actual price you get from your broker. This can turn out as a loss for you but can also be in your favor for some of your trades.

In the picture below you can see 2 scenarios.

The 1st scenario is when you want to enter into a BUY (long) trade and you click on the BUY button when the price is 1.12957 but you end up getting a better price, so you are executed at 1.12953…that is 0.00004 in your favor.

In 2nd scenario, you want to open a BUY (long) trade at the price 1.12938 and you get a worse price from your broker: 1.12944. So, in this case, you are losing 0.00006 (or 0.6 pips).

Why am I not getting the price I want?

Slippage is a normal concept in trading and it happens when you are trading using the Market Orders. In short, when you trade using a market order you agree to get whatever price is available from your broker or from the market.

The price may change from the moment you hit your trade button to the moment the order reaches the broker’s server ( between 1 and 50 milliseconds usually) and this is why your broker may not be able to offer your expected price and will execute your order at the best price available.

IMPORTANT: with market orders, you can not cancel that order once it is sent. So once you click that button you agree to get executed at whatever price will be available and that price can be way off your expected price, especially during high volatility times.

How is slippage affecting your trading

In most cases, slippages are worth few ticks and in the long run, the positive slippages will cover for the negative slippages so in this case, slippage has no effect on your trading.

However, the environment you are trading in is very important. 

If you are trading on an exchange type venue, where you see the market depth and volumes, everything is transparent and you will get the best possible price when trading with market orders.

Nevertheless, if you are trading OTC (over the counter) products like CFDs there are high chances that you get outrageous losses from slippage. This happens because your broker is able to automatically decide (in most cases) the amount of slippage added on a specific trade you placed. The potential losses caused by the slippage will be “invisible” to you as there is no place to see a report on the slippage (on most trading platforms).

IMPORTANT: On OTC products (CFDs) even your Limit Orders will transform in Market orders and you may get different prices than the ones expected.

You are legally entitled to get the positive slippage

If you are trading with an EU regulated broker, you are legally entitled to get a positive slippage. This means that if there is a positive price difference between the moment of placing the order and the moment of execution, the broker has to execute your trade at that better price for you.

You can see an excerpt from this right coming from FCA, the UK regulator.

What can I do to protect my account from abusive slippage?

Ok, so slippage is definitely a normal concept in trading. However, when trading CFDs you are in the unfortunate position where you are not able to track your slippage directly from your trading platform. 

You can get slippage on trades even if you trade using an Automated Trading Software (like an EA on MetaTrader4 or MetaTrader5. 

All this slippage issue should not be bothering you if you knew your broker is fair to you in this regard. Unfortunately, not all brokers are treating this aspect fair and, as a result, you can end up losing a lot of money from your trading account on slippage, without even knowing it.

We developed a special tool that helps you track your slippage and check if your broker is fair to you. PQ Slippage Tracker works on all MT4 trading platforms and it can track the slippage of both manual trades and trades placed by an EA.

Read more about PQ Slippage Tracker here: https://prop-quant.com/products/free-plan/pq-slippage-tracker/

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