I read on babypips that slippage occurs mostly during news release trading however I really didn’t get their explanation of slippage and how it affects traders. So I would appreciate if someone can explain (in very simple terms) what slippage really means and how it affects traders. Thanks
I’ll give it a go bro. Slippage is basically the different between price from when the order was placed and the order filled. eg. You place a market order to buy at say 1.13500 and it gets filled at 1.13505 then you suffer a 5 point slip.
Two main causes of slippage, first is liquidity. Remember this is basically an auction. Buyers want to buy at the lowest price possible sellers want maximum return. Just because you want to buy at 1.13500 doesn’t mean someone will sell to you at that price. When you place a market order you are saying just fill my order at current price. Now if the only seller wants 1.13520 this is the price you will pay thus suffering a 2 pip slip.
Second is spread. Of course your broker wants his piece of the pie. As this widens or closes usually because of liquidity so too can your fill price.
Now combine those two factors at like news times and slippage can become a major factor. Especially if you’re like scalping. Best way to avoid slippage is to use limit orders but then that brings in a whole new set of issues.
Slippage is just another one of a great many reasons you should trade medium to long term (not scalping or daytrading).
But don’t take my word for it. I am just a tripped out dude to young to be a hippy.
May your trading endeavors be profitable beyond measure.
bobbillbrowne gave you a good explanation. In case you experience too much slippage or the slippage is excessive than you may want to find a broker who has a better ability to fill your orders.
You crack me up bro lol
Hi, slippage may generally mean a failure to meet an agreement or it maybe a different result beyond what you have expected.
Let me put it in this way: Imagine you are on a market where apples are purchased for dollars and dollars can be purchased for apples without any problems. 1 apple for 2 dollars - 2 dollars for one apple - high market liquidity. You have 50 dollars and want to exchange them to 25 apples. Suddenly news came out that hurricane damaged the harvest and supply of apples will be reduced for next year. You expect prices on apples to inflate to 6$ for one and trying to buy 25 apples for 50 dollars asap but there is immediate reaction from apple sellers running up their prices high, there is a queue of apple buyers and you are waiting your turn. Sale after sale prices are grow - 2, 2.5,3, 3.5, 4 $ for one apple, etc. When your turn comes you can find there is no price of 2$ for one apple but 5$ instead
Because of this significant price change you will get 10 apples instead of 25. After selling them for 6$ for one apple you will get 60 bucks instead of 25*6 =150 bucks and make only 10 bucks profit instead of 100. The change in 3 bucks called “slippage” in markets and most of the times it causes losses or potential cut in profit for traders…
Try to pick broker with good liquidity provider (apple seller) and your orders will be executed with least slippage.
Slippage occurs when no one is willing to take the deal on the other side of the transaction or when due to fast moving market the broker the broker did not execute the deal on time.
I would also add that you can get some slippage because of the tiny delay between you looking at the price, clicking ‘buy’, and your internet connection passing that to your broker. Only fractions of a second but in a fast changing market around news events it can cost you pips
Ah dreaded latency. The arch enemy of any scalper. Well spotted bro.