What is Slippage?

When conducting foreign exchange transactions, you sometimes notice a slight difference between the order price and the transaction price (the price after the foreign exchange transaction is completed).

This situation is often referred to as slippage.

For foreign exchange traders, this situation is very common.

Slippage can have a positive effect, or it can lead to a negative effect.

There are two main reasons for slippage, one is the volatility of the foreign exchange market, and the other is the execution speed.

When the market fluctuates sharply, it usually means that liquidity is reduced and market prices fluctuate rapidly.

When the market does not have enough liquidity to perform liquidation at the required price, it will have an impact on foreign exchange traders.

Whenever this happens, the liquidity provider will execute the liquidation again when the next best price comes.

Another reason for slippage is execution speed.

That is, the speed of your ECN needs to be fast enough to be able to close the position at the expected price level.

Given that market prices change every few fractions of a second, it is very important to have a fast execution speed, especially when conducting large transactions.

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Forex slippage example

The price of AUD/USD is 0.9010. After analyzing the market, you believe that the price is in an upward trend, you decide to buy 1 trading standard lot at the current price of AUD/USD 0.90501, and hope to execute the transaction at the 0.9050 level.

The market is trending towards an upward trend, but the price soon exceeds your execution price level and quickly rises to 0.9060 within a second.

Because the transaction execution price level of 0.9050 you expected has not been able to appear in the market, and there is a second best transaction price. For example, 0.9045,

In this case, you will enjoy a positive slippage: 0.9050-0.9045=0.0005, which is +5 points.

On the other hand, if you say that your transaction execution price is 0.9055, you have suffered a negative slippage: 0.9050-0.9055=-0.0005, which is -5 points.

It should be noted that slippage may occur in all types of transactions that request an order, such as stop loss, arbitrage, buy/sell stop loss, and buy/sell limit orders.

Since Vantage FX uses market transaction execution, we cannot guarantee that such transactions will not occur.

We provide a market transaction execution mode.

Because of this, we cannot close a position at a price that does not exist. If the requested price you set fails to appear, your order will be directly closed by our foreign exchange liquidity provider according to the current market quotation.

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