5 Ways to Avoid Slippage in Trading

In forex trading, slippage refers to the difference between the trade's execution price and the expected price. Of course, slippage happens in all asset classes and market conditions, but it's particularly frequent in markets with elevated volatility.

Causes of Slippage

Usually, there are three main causes of slippage:

• High volatility In times when the market moves too fast, slippage can be quite big. In other words, if there are a lot of purchases on the market, the price can move quite drastically in a short amount of time, causing large slippage.
• Low liquidity When an asset is illiquid, traders might have difficulty opening and closing trades. Because of this, the price of an asset might be much higher/lower when the trades get executed.
• Tech Issues and Inconsistencies Once you decide to open a position, the request gets sent to the brokerage's server and gets processed. However, these trades aren't executed simultaneously, as there is often a delay of 50-100ms, known as latency.

How to Avoid Slippage

There are a few ways to avoid slippage—or at least reduce the chances of it happening too often. For starters, here are five things you can try:

1. Avoid Volatile Periods

By avoiding high volatility periods, you'll be able to reduce the amount of slippage you encounter. This is particularly for scalpers who open and close positions extremely quickly.

2. Choose Markets with Low Volatility and High Liquidity

If you want to avoid slippage, opting for markets with low volatility and high liquidity is recommended. This can help you get in and out of trades quickly and with minimal impact on your trading account.

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3. Use a Boundary Order

A boundary order allows you to set a certain amount of pips above and below the current price. If the market crosses this boundary, a trade will automatically be opened. This allows you to start trading without having to worry about slippage too much.

4. Apply Stops and Limit Orders to Your Positions

Most brokerages offer you the option to place limit and stop orders on your trades. This helps you avoid slippage by ensuring that your positions are only opened and closed at the exact price you specify.

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5. Find Out How Your Provider Treats Slippage

It's important to know how your provider treats slippage. Many brokerages will adjust the opening and closing prices of a trade to make sure you don't suffer too much slippage. Be sure to check these policies about your brokerage before you start trading.

Can You Avoid Slippage?

Slippage is an unavoidable part of trading, but the risk can be reduced by following the tips outlined in this article. By avoiding volatile markets, trading with high liquidity, and using specified orders, you could greatly reduce the amount of slippage you experience when trading.