Forex slippage is an example of a pretty normal forex trading occurrence that is usually spoken of as a bad thing. When it goes against you it is, but slippage can also work in your favour.
Here at FW MARKETS, we treasure transparency. Since we have nothing to hide, here’s the real story about slippage.
Slippage is defined as the difference in pips between the order price and the execution price for a particular transaction.
For example, you ordered to BUY 1 lot of EURUSD at the Market Price of 1.35050, the order was sent out through MT4 to the liquidity provider and then the confirmation message comes back informing you that your order was executed at 1.35055. Slippage = 1.35050 - 1.35055 = -0.00005 -> -0.5 pip EURUSD = -5 USD
You just lost 5 USD in slippage. It could happen even with an ECN broker when you’re trading at market price due to the fact that prices move so fast, they could change before your order reaches the Liquidity Provider for execution; blame it on network speeds and market volatility.
Interestingly enough though, and this is what most brokers rarely tell you, slippage can actually work in your favour as well. Take the example trade and if the price changes from 1.35050 to 1.35045 you’re actually $5 better off just from the positive slippage.
Shocking – but true. It’s what we call Price Improvement and it’s the part of slippage some brokers like to keep to themselves.