An investment in the financial market can prove to be a great way to reach your financial goals. You can profit from price movements in the market, when you successfully trade in stocks, forex, or commodities, for example.
The markets can be extremely volatile, and whilst this opens up opportunities to make gains on your investment, it also poses the risk of making losses. One of the side-effects of volatility is slippage and this can affect your investments significantly.
When you trade in the financial market, you will need to set your position at a specific price point. When slippage occurs, the price level that you receive will differ from the one that you requested, meaning you’ll have to trade at a different point in the market.
Slippage can also occur when you place a pending order — where you agree to buy or sell an instrument at an estimated future price. In this instance, slippage may take place because, though predictions are well informed, the future is uncertain and your requested level may not be available when the time comes for your order to be fulfilled. In this case, your order will be fulfilled at the next available price level.
In this article, we will guide you through all you need to know about slippage and explore how it could affect your positions when forex trading with Skilling, for example.
Can slippage impact my trade negatively?
It’s possible for slippage to impact your trade negatively, because of the fact that you’re offered the closest price point to your initial order. This means that the trade could be executed at a lower price than the one that you first requested.
However, the opposite can also occur, meaning that slippage can also positively affect your trade, placing your order at a price point that is more favourable than your request.
Can you avoid slippage?
Slippage is unavoidable, because the volatility of the financial markets is completely out of traders’ control, and influenced by a multitude of external factors. These include, as an example:
- News releases
- Economic and political events
- Unprecedented events
Although you can’t avoid slippage, you can limit the effects it has upon your investments by employing risk managements tools, like a guaranteed stop. This stop-loss tool will protect your capital by preventing your position from moving past the price point that you initially requested.
Slippage in the forex market
The forex market enables you to trade in some of the world’s major currencies and is one of the most actively traded markets, seeing over $6.6 trillion worth of trades take place each day. The forex market can prove to be extremely volatile because the value of currencies areclosely impacted by an array of global economic factors and events.
As a result of this, you may encounter slippage when trading in currencies. Although forex dealers will ensure that you receive the next available price point, this will be different to which you first requested.
As we previously mentioned, slippage is unavoidable, even in the forex market, however there are specific currency pairs that are less vulnerable to its effects. This is because some pairs prove to be more liquid than others, like the Euro and US dollar pair(EUR/USD), for example.
It’s important to know about all of the factors that can affect your trade before you open a position in the financial market, as this will help you to trade more successfully and avoid making losses on your capital.Although slippage can affect your trade, there are measures that you can take to prevent it from having a significant impact upon your investments.