Is there slippage in forex?
I was wondering if slippage exists in forex?
I am not 100% sure what slippage is but im looking for a broker and im looking for suggestions
When you encounter a word you can't define, start by clicking on the "FOREXPEDIA" tab at the top of the page, here on the Babypips website. If you go there, and look for "slippage", you will find:
The difference between the expected fill price and the actual fill price.
High probably of slippage may occur in highly volatile markets (i.e. during news or economic releases.)
Also, try Investopedia.com, where you will find:
The difference between the expected price of a trade, and the price the trade actually executes at. Slippage often occurs during periods of higher volatility, when market orders are used, and also when large orders are executed when there may not be enough interest at the desired price level to maintain the expected price of trade.
Slippage is a term often used in both forex and stock trading, and although the definition is the same for both, slippage occurs in different situations for each of these types of trading.
In forex, slippage occurs when a limit order or stop loss occurs at a worse rate than originally set in the order. Slippage often occurs when volatility, perhaps due to news events, makes an order at a specific price impossible to execute. In this situation, most forex dealers will execute the trade at the next best price.
So, the answer to your question is Yes slippage (also referred to as a "bad fill") occurs in forex trading. You will suffer a bad fill from time to time, regardless of the broker you use. If this happens too often, get on the phone to your broker and raise the issue. If you're not satisfied with the answers you get from your broker, compare notes with other traders to determine whether your experience is worse than normal. If it is, you might want to change brokers --- but, that should be your last resort, not your first resort.
On rare occasions, very large slippage can occur. If this happens to you, call your broker. If you can demonstrate to your broker that the market was orderly at the time of your "bad fill", your broker will likely assume responsibility for the slippage, and make the appropriate adjustment to your account. Here again, if you can't get a satisfactory resolution from your broker, your last resort is to change brokers.
From time to time, we all get mad at our brokers, and blame them for cheating us in various ways. Half the time, we are probably blaming our brokers for our own mistakes. But, what about the other times? The fact that bad fills ALWAYS benefit the broker, and NEVER benefit the customer, leads us to believe that this can't be random and accidental --- this must be deliberate manipulation on the part of the broker. But, no broker will ever admit to this.
I don't think anyone can tell you to use this broker, or that broker, and you will never have bad fills. No matter which broker you use, you will occasionally have an order filled at a price which is worse than the price you expected. You'll have to decide for yourself whether, or not, your problem with bad fills is too serious to ignore.
Some brokers who are market makers guarantee prices, and you shouldn't get slippage if you set the entry type right. They can guarantee the price because they make the market and set the prices after prices are given to them. Odds stacked in their favor......
I trade with IBFX, With SL and Stop and Buy limits, which cause the trade to be entered/exited as price passes through the price you want, I do get some small slippage if price is moving really good. Usually no more than 1-3 pips. Often though, it is right at the price I want.
If you have a problem with very bad slippage it is really only one of two thing:
1. you don't understand the type of entry order you set up and didn't get what you expected. (this differes from broker to broker, what one broker means by market order can be different at another, so read about their order typesl)
2. The broker is a crappy broker, bucketshop, ect. More than likely it's #1 though.
P.S. don't mistake paying the spread for slippage and not getting your price. If you are using MT4 I recommend going into the configuration and making the platform show a line for BOTH bid AND ask. So, you can see the difference of where your trade will enter with buying and selling. The spread can often be enough to screw up a trade when you are inexperienced.
“In statistical terms, I figure I have traded about 2 million contracts, with an average profit of $70 per contract (after slippage of perhaps $20). This average is approximately 700 standard deviations away from randomness.”
Niederhoffer, Victor. The Education of a speculator (1998) p156 ISBN 0471249483
ThePhoenix is right about that, but there is another factor that can cause slippage with any broker, market maker or not.
Originally Posted by ThePhoenix
When you hit the buy or sell button on your computer it can take anywhere from 1/10 of a second upwards for your order to bounce off a few satellites and travel down the wires to your broker's computer. Forex prices can move so fast that in that fraction of a second the price can move a few pips and slippage can occur.
I remember back when the bottom fell out in Oct 2008. I went short on GBP/JPY when it broke 150.00 and I got slipped 80 pips. Still made 250 pips in about 30 seconds even after the slippage though
Slippage is the most common factor in forex due to which various tools used like stop loss and limit orders become less effective. Slippage occurs due to volatility in the market. Trailing stop is the tool which can save you in such crunch situation. So don't forget to use trailing stop we understand the importance of this particular tool during slippage only.
I don't understand how a trailing stop can help with slippage. Could you explain further?
Originally Posted by sam111
Slippage or a crappy broker
Originally Posted by ThePhoenix
Hi ThePhoenix, Thank you for a very well explained email about slippage.
Recently I had following three positions open
229340 2011.12.21 18:30 sell 0.05 cadjpy 75.872 0.000 75.868 76.584 0.00 -0.56 -29.25
229514 2011.12.21 19:42 sell 0.05 cadjpy 75.927 0.000 75.868 76.584 0.00 -0.56 -26.99
231185 2011.12.22 15:14 buy 0.10 cadjpy 76.309 0.000 0.000 76.556 0.00 0.14 20.29
which were closed automatically. According to the broker it was due to liquidity
problem during Christmas time. There three positions I thought will balance each other and
there was also more than 20 pounds free margin available for extra cover.
And the broker response was
"When the market opened again at 22:00 on Christmas Day, there wasnâ€™t a lot of liquidity in
the markets and the spread for CAD/JPY widened to 46 pips. Which is the reason that you
were traded out."
I am new to Forex. Is it a valid reason or it is time to change my broker?
Please guide me with your experience and wisdom.
"To accomplish great things, we must not only act, but also dream; not only plan; but also believe."