Slippage definition

What is slippage?

Slippage is the term for when the price at which your order is executed does not match the price at which it was requested. It occurs when the market moves against your trade and, in the time it takes for your broker to process the order, the original price set is no longer available.

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Slippage can happen at any time, due to two main reasons. The first reason is high volatility in the market. If there is a sudden movement of price beyond your stop order, the trade may not be closed in time and the stop may not be triggered at the level at which it was set. The second reason is that there is a gap in the market – this is when the market moves sharply up or down with little or no trading in between.

Examples of slippage

Say you have a short position on GBP/USD with a stop set at 1.360. Before the market closes on Friday evening, the price is trading at 1.350, but over the weekend, some breaking news causes the market to rise. When trading resumes on Sunday evening, the price is much higher, and the best available price is above your stop – at 1.365. This means the stop order will be filled at the new, higher price.

Pros and cons of slippage

Pros of slippage

Although slippage is normally associated with negative market movement, it can occur in any direction, which means that you can also experience positive slippage. This is when your order is submitted, and the best available price suddenly changes while the order is being executed. Your order could then be filled at a better price.

Cons of slippage

The cons of slippage are evident if negative slippage occurs. Negative slippage is when you have a stop set but it can’t be processed quickly enough, and your order is filled at a worse price than expected. This could result in a smaller profit or a larger loss.

The impact of slippage can be avoided by attaching a guaranteed stop to your trade. Unlike basic stop losses, a guaranteed stop will always fill your trade at the price at which you have set it. There may be a charge to pay for this protection. With IG, you’ll pay a small premium if your guaranteed stop is triggered.

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