What Is Slippage and How Does It Affect My Trades?
Slippage is a common occurrence in trading and refers to the difference between the price you expect for a trade and the actual price at which it gets executed. It typically happens in fast-moving or illiquid markets, where prices can shift in milliseconds.
Why Slippage Happens
Imagine placing a buy order at a certain price, but just before it's filled, the market moves. As a result, your order gets executed at a slightly higher price. That’s negative slippage. On the other hand, if the market shifts in your favor and your trade is executed at a better price, that’s known as positive slippage.
Slippage is most common during periods of high volatility such as major news releases or in markets with low liquidity, where fewer orders are available to match your trade instantly.
Impact on Your Trading Strategy
Understanding slippage is crucial because it can directly affect your trading outcomes. While small in many cases, repeated negative slippage can reduce your profits or increase losses over time. It can also interfere with the precision of your entries and exits, especially for scalpers or short-term traders.
By using tools like limit orders, avoiding trading during major economic events, and choosing brokers with fast execution and deep liquidity like Bullwaves you can reduce the impact of slippage on your strategy.