What is the FX slippage?

Isn’t there any chance that you’re doing Forex trading and you’re irritating on the slippage because the loss is increased?

When the market is out of order, and there are some cases where the adverse effects beyond the slippage will occur.

For traders, slippage is one of the common worries, while Forex is a good way to build profits.

So it is necessary to deal with the slippage well.

Forex Brokers with the Best Slippage Condition

Before getting into more about the “Slippage” itself, let us introduce you to some of the brokers with the best “slippage conditions.

There are many reasons for these brokers to be the best in terms of slippage, and we will also get into more details later.

1. Yadix
2. FBS
3. FxPro
4. FP Markets

1. Yadix

Yadix is a true STP and ECN broker, with one of the best execution conditions provided among others.

Yadix has recently improved the NDD and STP order execution quality on MT4, resulted in 30% increase on Tick Frequency and reducing slippage, and increasing order filling quality.

Yadix is also known as the Best FX broker for scalping and High-Frequency Trading (HFT) due to its execution quality.

In terms of order execution with deep liquidity, Yadix tops in the industry.

Go to Yadix Official Website

2. FBS

FBS positively supports its investors by improving its systems, service condition, and also internal liquidity.

FBS is also an STP and ECN broker, which allows any kind of trading strategy on the platforms.

On FBS MT4 and MT5, there is no manipulation on the result of slippage, thus you will experience both negative and positive slippage depending on the market condition.

With FBS’s ECN technology which realizes deep-liquidity on all platforms, you can trade with the optimal slippage condition.

Go to FBS Official Website

3. FXPro

FXPro has been a long-time professional and excellent Forex broker, and many traders choose FXPro for its professionalism and security.

FxPro has reported “Positive Slippage” over 35% in a quarter’s Execution Statistics.

Among many trading account types available with FXPro, there are some with “Instant Execution” which prevents any slippage of orders with “re-quotes”.

Go to FxPro Official Website

4. FP Markets

FP Markets is a Forex broker with a large number of products, and you can invest in over 10,000 financial markets.

With FP Markets, you can choose from various trading platforms which are MT4, MT5, and Iress.

FP Markets is an NDD (No Dealing Desk) broker that offers a superior trading environment with the latest technology.

Its transparency and stability achieve to provide one of the best trading conditions with deep-liquidity.

Go to FP Markets Official Website

What is slippage?

Let’s start by confirming the basics of what slippage is and how much it affects your trading results.

Slippage is the difference between the rate that was ordered when opening the position and the rate that was actually executed.

It mainly refers to shifting in a disadvantageous direction, which is a negative image for traders.

For example, when EUR/USD reached 1.10500, you placed a long market order.

However, the actual contract was 1.10503, and the rate was off and the contract was made.

This is slippage.

Of course, the same thing happens with limit and stop orders.

The more your order receives slippage, the less profit you will have, and the more you will lose.

It’s a really annoying phenomenon for traders because they lose money even though they didn’t make a mistake.

However, it is difficult to avoid slippage completely.

Therefore, it may be necessary to think diligently to some extent.

On top of that, it’s a good stance to make efforts to reduce the effects of slippage, in order to make more profits.

See the List of Forex Brokers

Slippage is part of transaction costs

As we saw in the previous example, slippage has the effect of reducing the trader’s funds by the amount of slippage.

So, in a sense, it’s the same as transaction fees and spreads, and it’s actually transaction costs.

However, slippage is often not what traders expect when trading.

If that happens, unexpected transaction costs will be incurred, and you will feel that you have lost money in vain, which makes you angry.

But perhaps no one gets angry when the transaction fees and spreads are financially negative.

It is because when choosing a Forex company, it is often examined as a transaction cost.

So, in one conclusion, it’s important to accept that slippage is also part of the transaction cost.

And let’s choose the Forex company including that part.

The way slippage is caused is also a part that makes a lot of difference depending on the Forex company.

Why slippage occurs in Forex?

We will explain why such slippage occurs and how.

It is essential to understand the reason for slippage countermeasures.

1. Time lag from order to execution

When a trader trades in Forex, the order is placed based on the rate displayed in the trading platform.

The ordered information reaches the Forex company’s server through the internet, and the Forex company accepts it and the order is executed.

It’s a fairly short time, but there could be a time lag.

Therefore, if you place an order when the market is in a state of intense and fast movement, such as when the market movement is rough, the rate could change between the time the order is placed and the time it is executed.

In addition, the Forex company not only accepts orders from traders but also sends the accepted orders to the covered bank (liquidity providers).

The ability to send orders to this covered bank depends on the Forex company.

The more banks they cover, the more they can handle any order from a trader.

On the other hand, if this part is weak, it will take time for traders to respond to orders, which will lead to an increase in the incidence of slippage.

2. Thin Market Liquidity

When trading in Forex, you may not pay much attention to it, but there is a board in foreign exchange trading as well as stock trading.

To be precise, there is a board in the interbank market where traders place orders with Forex companies, but where Forex companies place orders with covered banks.

The board at this interbank market is important, and if the order is not completed there, slippage is likely to occur.

For example, if you place an order for a large size.

Each board has a certain number of buy/sell orders for each rate, but if a large order comes in that will digest all the buy/sell orders and blow them away, the value will move significantly.

In that case, slippage will occur because the rate will deviate from what you expected.

On the other hand, if the quantity of buy and sell orders for boards is almost small in the first place, the same situation will occur even if it is not a large size order.

Such thin liquidity in the market occurs during a quiet market when no one is trading.

For example, slippage is likely to occur when European traders make transactions at such times as Christmas, which is a holiday.

3. Intentional operation of Forex company

Regarding slippage, it is often suspected that the Forex company is doing it intentionally.

This is because Forex is often in the form of over-the-counter trading.

It is a form of trading that is completed between the Forex company and the trader and the trading is not connected to the interbank market.

However, of course, there is a risk if the broker keeps holding the order, so they will send the order to the affiliated bank, but the way to do it is a black box.

In other words, in the first place, the Forex company receives the order of the trader and has the opposite position to the trader.

In that case, if the trader makes a profit, the Forex company will be in a state of losing money.

Once upon a time, in Forex, there was a problem called stop-hunting, where the Forex company intentionally moved the rate to cut off the loss of traders.

No one can say for sure, but doubts about slippage are an extension of that.

How to avoid loss on slippage?

In the previous chapter, we looked at the reasons why slippage occurs.

Now let’s look at the idea of ​​how to deal with slippage while taking this into consideration.

1. Try to stay stable mentally

First of all, we would like to mention the stance you want to have for slippage.

Of course, slippage makes everyone feel uncomfortable, but it is important not to make it mentally affecting.

This is because if your mental health collapses, a small loss of slippage can grow into an irreparable loss if you’re not good at it.

It is a common pattern of Forex that leads to a large loss from a brute force transaction that started trying to recover a small loss.

You need to accept slippage in order not to break your mentality.

Unexpected losses are difficult to accept, so slippage must be taken into account in advance when trading.

Slippage can easily be the gateway to mental collapse, so you should be aware of that.

2. Use trading strategies with no slippage damage

Traders want to avoid slippage, but slippage isn’t important to all traders.

For traders who don’t have to worry about slippage, it may be wasteful to think too much.

Traders who consider slippage is not important are traders who have a long margin of positions and trade infrequently, such as position trading and swing trading.

Slippage is a cost that is incurred per transaction, so the impact is small for these traders.

Conversely, slippage has a greater impact on the types of traders who trade multiple times a day, such as scalping and day trading. Therefore, it is important to devise ways to avoid slippage.

In short, the importance of slippage changes depending on the frequency of transactions.

Consider the importance of slippage to yourself and take the best care for your trades.

For some people, it’s better to turn that power into chart analysis than to think about it.

5 ways to make slippage less likely

The idea is to reduce the slippage of the main subject, but I will introduce five in relation to the cause of slippage in the previous chapter.

1. Trade with the broker with high execution quality

As mentioned in “Time lag from order to execution”, there are differences in the ability of Forex companies to send orders to the covered banks.

One way to reduce the rate of slippage is to choose a Forex company that is strong in this area.

In other words, at the stage of selecting a Forex company, you will make an effort to suppress slippage.

However, the slippage rate of Forex companies may change over time.

Don’t worry if you decide once, in that case, consider reviewing it regularly.

If you want to suppress the influence of slippage as much as possible, please use it as a reference when selecting a Forex company.

2. Try to avoid the rough market condition

This is also related to the “time lag from order to execution”.

Specifically, the idea is to reduce the incidence of slippage by trading while avoiding the rough market where slippage is likely to occur.

The point is that slippage will occur if the exchange rate moves during the time-lag between ordering and execution.

Of course, it is more likely that the exchange rate will move in a rough market where the exchange rate fluctuates violently.

An easy-to-understand example of a turbulent market is just after a big economic indicator is announced.

At such times, be aware that slippage is likely to occur.

If you really want to avoid slippage, we recommend that you wait for the right moment to trade

3. Trade when the market liquidity is deep

Next is the slippage caused by the “effect of thin market liquidity”.

In other words, you should avoid when the market liquidity is thin, as thin market liquidity means that there are few orders and transactions.

In other words, it is a quiet market with extremely few market participants.

We should be careful when taking long holidays related to American and European holidays, especially during the Christmas holidays.

In addition to this market liquidity, spreads tend to be unstable before slippage, and the market itself may become extreme.

4. Order smaller sizes per position

This is also related to the “effect of thin market liquidity”, but even in normal market conditions, slippage will occur if you place an order for a large size.

Theoretically, the larger the order size, the higher this probability will be.

So, if you have a lot of slippages, one solution is to split your order into two.

Alternatively, you can divide the funds into multiple Forex companies and place orders separately.

If you’re investing in a small amount of money, you don’t have to worry about this.

However, if you think that “slippage may have increased a little” when the funds increase in the future, we would like you to remember this.

In Forex, we use “Lot” to count the volume of each order.

Before start trading, you also may need to make sure that the size of 1 lot of your Forex broker.

5. Use an NDD Forex Broker

The fifth and final point is about slippage in “Forex company’s intentional behavior”.

No one knows if this is actually happening, but considering the mentality, if you have this kind of feeling, you may want to change the broker.

What kind of Forex company should be chosen is the so-called NDD (No Dealing Desk) Forex company.

With this trading environment, traders’ orders are directly linked to the interbank market, so there is no conflict of interest between the Forex company and the trader.

In other words, there is no point in intentionally causing slippage.

By the way, slippage may occur even with the NDD method.

However, since it does not happen intentionally, it will be easy to keep calm even if slippage occurs.

Set Slippage Tolerance (or Deviation Setting)

We have introduced the idea of ​​suppressing slippage, but in fact, there is also a function to forcibly eliminate slippage in the ordering function.

That is the function to set the slippage tolerance (or deviation setting), which is implemented in the trading tools of many Forex companies.

For example, if you set the slippage allowance to 1 pip, the order will not be filled if slippage exceeds 1 pip.

Therefore, it is possible to make settings that do not allow slippage at all, which is an extreme story.

However, it is important to note in this case that the narrower the slippage tolerance, the higher the probability of not executing.

It’s still good for new entries, but it can lead to big losses if, for example, a settlement order that you try to escape during a sudden market change does not fill.

So, let’s take note of these disadvantages as well as the advantages of preventing slippage.

If you do not make a mistake in using it, the tool will be a strong ally.

What is the “Execution Quality”?

What is the execution quality that greatly affects winning and losing in Forex?

There are some very important terms in Forex, and execution quality is one of them.

Many traders mention:

“I don’t know what the contract power is”

“I know about execution quality somehow, but I don’t really understand why it’s important.”

While solving the question of such traders, we will explain the merit of execution quality and the solution when there is no execution power.

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Execution quality means “speed and accuracy of orders”

Suppose you decide on a trading currency pair, decide on the amount and leverage to trade, and press the button to execute trading.

Many people tend to think that this is a “transaction” right away, but that’s not the case.

There is only a short time lag between clicking the trade button and the actual trade being executed.

The “shortness” of this time lag and the “execution rate” of whether or not to actually make a transaction are called execution quality.

In short, in Forex trading, “transaction speed and accuracy” is the execution quality.

If the trader or the system considers an order that is too unreasonable as a transaction, it is very rare but the transaction won’t be executed even though the transaction button is pressed.

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Advantages of high execution quality

In this chapter, we will explain the advantages of having high execution quality and the disadvantages of not having it.

Let’s understand this and think more deeply about why execution quality is important in Forex.

It can be said that there are 3 major merits when there is high execution quality.

1. There will be no slippage

Slippage refers to the state in which there is a difference between the “price at the time of pressing the button” and the “actual price” when you actually want to purchase as explained in the beginning.

If the execution quality is high, the slippage rate can be suppressed and the trader can trade as envisioned.

2. Spread becomes narrower

Slippage spreads directly, resulting in higher transaction fees per order.

Information such as “average spread” and “minimum spread” is available for each trader, but traders with high execution quality generally have better spreads.

Execution quality is also required to reduce transaction costs.

3. Trade with confidence thus reduces stress

If you feel “I don’t know when slippage occurs” or “I can’t trade as I expected”, each transaction becomes anxious and leads to stress.

When stress builds up in Forex trading, it becomes impossible to make a calm judgment, leading to a loss.

Many people take it for granted that they can trade with peace of mind, but it is very important.

It can be said that the execution quality guarantees this.

See the list of Forex Brokers

Execution Quality is important for Scalping trade

It can be said that the timing of 0 seconds determines the outcome for a scalping trader who accumulates small profits and increases profits.

It is the execution quality that is greatly involved there.

Comparing many Forex companies, you can see that the execution speed is mostly in the world of less than 1 second.

When it comes to that, some traders may wonder, “How many seconds of such a zero comma difference really affects the transaction?”

The impact of this slight difference depends on the trading style.

Especially for scalping traders, they are directly involved.

In scalping trades, the key to winning is to accurately predict the slightest timing and trade reflexively or to set up a system and trade.

At that time, if there is no execution quality and the execution speed is slow, no matter how much the timing of selling or buying is estimated accurately, it will not be executed, or it will be settled at a value after a long time, so even if you predict it accurately, you will not be able to trade like you planned.

Execution Quality and Speed aren’t the same

In this chapter, we will explain the detailed knowledge and precautions related to execution quality.

1. execution quality and speed are not strictly equal

When you say execution speed, it simply means the time from clicking the button to complete the order, but when you say execution quality, it is not strictly equal because it includes the transaction execution rate in addition to speed.

2. The execution quality is different for each currency pair

The execution quality depends on the Forex trader and the system used.

First of all, as a major premise, it is important to try to use a currency pair with high execution quality in advance.

In addition, execution quality and speed are not the only factors.

In fact, it depends on the currency pair you trade.

To help you understand this, you need to know the liquidity of currencies.

What is the Liquidity of Currency?

“Currency liquidity” in Forex simply indicates whether the currency is trading actively.

In other words, a “high liquidity” currency can be evaluated as a currency that is actively traded and easy to buy and sell, while a “low liquidity” currency is a currency that has few transactions and is difficult to buy and sell.

Low liquidity increases the risk of not being able to trade when you want to.

Therefore, it also affects the execution quality and speed.

The liquidity mentioned above is constantly changing due to the time of market opening, critical economic indicators, and news announcements, and these movements directly affect the execution quality.

It is also good to recognize that the execution quality changes depending on the situation even if you use the same Forex trader and the same system.

How to improve the Execution Quality?

Execution speed can also be increased by the efforts of traders.

Some traders may feel that their order executions are slow, even though they have chosen a broker with a high execution speed.

In that case, you may be able to improve the execution speed by your own efforts.

The trading environment of the trader itself also greatly affects the execution speed.

Please pay attention to the following 4 points and try to improve.

1. Set up a dedicated trading server
   If you want the fastest execution speed, it is better to introduce a server specialized for trading and only for trading, instead of using a normal server.
2. Raise the specifications of the computer
   It is also an effective way to upgrade your computer as high as possible. Upgrade your CPU and memory to a higher level. Raising the specifications of your PC is a simple but effective way to increase your trading speed.
3. Close other running software and Web browser and use only the trading application
   For example, MT4, a software used by many vendors, is not only easy to read charts, but it is also a very excellent software that can perform automatic trading and system trading, but it is also a very heavy software due to its versatility. As mentioned above, it is a good idea to raise the specifications of the PC, but it costs a certain amount. Therefore, as a simple solution, it is a good idea to reduce the burden on your PC by closing software other than the necessary trading tools.
4. Try changing the trading base overseas
   It goes without saying that many overseas Forex companies may not have servers in your country, but instead have servers in large data centers such as London and New York. This physical distance becomes latency and also affects the execution speed. Changing the trading base overseas is a high hurdle, and it may seem a little overkill, but moving to the country of the data center of the company you are using will speed up the execution.

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Conclusion

This time, we have explained everything from the cause to the countermeasures on slippage.

Lastly, we would like to reconfirm the content by reviewing it.

Slippage was a gap between the order and the actually executed rate, but there are two possible causes.

1. Time lag from order to execution.
2. Impact of thin market liquidity.

In addition, based on this, the following measures should be taken.

• Use a Forex company with high execution quality.
• Trade while avoiding rough markets.
• Trade while avoiding quiet markets.
• Do not order positions with large sizes.
• Trade with an NDD Forex broker

The merits of execution quality related to the speed and accuracy of transactions are broadly divided into “eliminating slippage”, “narrowing spreads”, and “reducing stress because you can trade with confidence”.

Ler’s select a Forex broker with high execution quality and work on what you can improve yourself.

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