CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.



What is slippage?

Slippage refers to the change in an asset price between the time a trader places an order (either long or short) with his broker, and the time that the position is opened. Slippage occurs with financial instruments that are extremely volatile, as well as when extreme movement has taken place on a usually illiquid asset.  In general, slippage is viewed unfavorably by traders, but there are times when it can work in the trader’s favor.

How does slippage affect traders?

Imagine a trader that wishes to purchase 100 shares of a stock that he sees is selling at $35/share. He places the request with his broker, expecting to pay $3,500 to open the position. However, if the asset is exceptionally volatile, and a large number of other traders are buying shares at that same time, by the time the broker executes the transaction, the price has risen to $35.15, in which case the trader will pay $3,515 for the investment and already earned $15. The trade still may be a good one, and if the price continues to rise, the trader will see a profit and can close the position when he believes the time is right to do so. Alternately, a trader wishing to go short on an asset that he believes will drop may ask his broker to execute a sell at $35/share, only to see the price down to $34.50 by the time the sell is executed.

Negative slippage can also occur, which is to the trader’s benefit. As in the examples given above, a trader wishing to open a long position at $35 may have his order executed when the price has dropped slightly, or the trader opening a short position can see the price rise.

Links related to short slippage

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