Stops can be a huge help when trading, meaning that you no longer have to keep a close eye on the markets throughout the day to make trades at the right level.
However, when slippage strikes it can mean that your stop may not be triggered at the level on which you set it.
How does slippage occur?
A trade can experience slippage for a variety of reasons, but there are two market conditions that are most vulnerable to slippage.
- When a market opens at a significantly different price to the price at which it closed, for instance due to negative headlines appearing overnight, slippage will occur. This is because we are unable to process your order outside of trading times so will trade at the best price available when the market opens, which may not match your stop.
- Slippage can also occur when a market is open, usually during periods of high volatility. If an economic announcement causes a sudden movement of price beyond your stop, for example, we may not be able to place the trade in time.
How do I prevent slippage?
The easiest way to prevent slippage is by applying a guaranteed stop to your trade. Unlike standard stop losses, guaranteed stops will always complete trades at the price at which you have set them. Bear in mind, however, that unlike other stops, guaranteed stops will incur a fee if they are triggered.