Remember your trades when you wanted to buy or sell something at some price, but instead your broker gave you worse price? And instead of bigger profit you received very small one. Or you wanted to cut losses and tried to close a trade, but it was closed at a worse price and you lost more than you planned. Sounds very familiar, isn’t it?
Now raise your hand if you know a trader who never had this situation at all. What? Traders like this do not exist, is it?
For those who never knew: a situation when you wanted to place a trade at some specific price and your broker fills it at a different price is called slippage. For sure you have heard from other traders that they could not make profitable trade because slippage happened to them. And obviously slippage is something you do not want to happen to you.
It seems that solution will be finding a broker which does not have slippage at all. Sounds reasonable, isn’t it? But fun thing is that you can hear complaints about slippage from traders who trade in some really small not regulated brokers, as well as from those who have their accounts with solid brokers like XM, or IC markets, or Pepperstone. But you do not want your broker to rip you off by giving you slippage, what shall you do?
First, do such brokers exist? And why sometimes slippage happens and sometimes not?
Apparently answer is not as complex as you may think. Usually, brokers receive prices from their Liquidity providers and transmit them to their trading terminal. All brokers do this: Forex brokers, stockbrokers, future brokers, all of them. During European or American trading hours when market is calm and no big news arrive those prices are very smooth and steady. And every second price received from Liquidity provider may differ from price one second earlier just by a little bit: for example, gold can be quoted 1890.00, 1890.00,1890.01,1890.02. Yes, it is changing, but very gradually. And if you decide to trade it, your order will be filled at the price you want.
Again, if the market is calm, no news is published, and it is European or American trading sessions.
If suddenly major news arrives to the market, the price jumps or drops and starts moving really fast. Many traders join the race hoping to profit from this major market move. They are pushing prices further and further and the prices are no more floating. They jump from level to level; they move really fast and the price available one second ago is already far away from the price in the next second. Price for gold now changes from 1890.00 to 1890.50, then to 1891 then to 1891.80 etc. By the time, your order hits broker’s server to be filled (even if it happens within 1-2 seconds) the price may move, and it is filled at the worse price. You get slippage.
Is it broker’s fault? The answer is NO.
Alternatively, you traded at night or early in the morning before European
session starts. Very few liquidity providers are available at this time, and just like
in any industry, when supply is short, broker may also receive prices from
Liquidity providers and prices may jump from level to level. High chance your
trade will also be filled at a worse price and you get slippage.
Is it broker’s fault? NO again.
Lastly, if you trade 500 lots in one trade almost no broker can fill it at the same
price. This trade will be split into a few smaller trades and broker will fill them
one by one at the best available price. But you will see in your terminal that the
price you wanted again is not the same as the price you got. Slippage? Slippage.
Broker’s fault? No.
However, we live in digital era with Internet and servers connected with each
other everywhere. Sometimes glitches and connection issues happen to brokers
or their liquidity providers (just like connection issues when you watch Netflix or
YouTube at home), and slippage may happen on your account due to this glitch
and wrong execution. Usually, you can easily detect it because the price you
receive is very far from prices of other brokers, or chart displays abnormal spike.
Then you need to contact your broker and ask to double or triple check
execution on your trading account to make sure there is no mistake. At least this
is what we advise our traders in Tickmill and if the problem is on our side, we
compensate the loss.
Remember, trading is risky and hope this post gives you a bit more knowledge regarding how markets operate so you can trade more confidently.
