Slippage in Forex trading refers to the difference between the expected price of a trade and the price at which the trade is actually executed. It commonly occurs during periods of high market volatility, such as during major news announcements, or when trading large order sizes in less liquid markets. While slippage can sometimes be a minor deviation, understanding its two main forms-positive and negative-is crucial for traders.
For a deeper dive into the general concept, you can refer to our article What Is Forex Slippage? Definition & How It Works.
Negative slippage occurs when an order is executed at a price less favorable than the requested or displayed price. For a buy order, this means the execution price is higher than requested. For a sell order, it means the execution price is lower than requested. This type of slippage results in a worse entry or exit point for the trader, potentially reducing profit or increasing loss.
Negative slippage is a common concern for traders, particularly during fast-moving markets. It can affect market orders, stop orders, and even the closing of positions via Stop Loss orders. Traders often seek ways to mitigate its impact, as unexpected price movements can significantly alter trade outcomes.
Conversely, positive slippage happens when an order is executed at a price more favorable than the requested or displayed price. For a buy order, this means the execution price is lower than requested. For a sell order, it means the execution price is higher than requested. Positive slippage is beneficial for traders, as it results in a better entry or exit point, potentially increasing profit or reducing loss.
While less frequent than negative slippage, positive slippage can occur under similar market conditions, such as sudden shifts in liquidity or price during volatile periods. Traders generally welcome positive slippage as an unexpected bonus.
The fundamental difference between positive and negative slippage lies in their impact on a trader's position: one is favorable, the other unfavorable. Both types are a result of market dynamics where the available price changes between the moment an order is placed and the moment it is executed. Factors contributing to both include:
Traders must understand that while positive slippage is beneficial, it is not something they can consistently rely on or plan for. Negative slippage, however, is a risk that needs to be managed.
While slippage is an inherent part of market trading, especially with market orders, traders can employ strategies and utilize broker settings to manage its impact. Some brokers, like RannForex, offer specific trading settings designed to give traders more control over slippage.
One such setting allows traders to define an acceptable slippage volume for market and stop orders, effectively treating them as limit orders with limited negative slippage. If this option is active and set to N pips, a market or stop order will be sent as a limit order with a price negatively adjusted by N pips. This means the order can only be executed with positive slippage or negative slippage up to N pips. If the market price moves beyond this limit, the order might not be executed, but it protects the trader from excessive negative slippage. This provides a way to control risks that is unavailable with traditional market order execution. The acceptable slippage volume (N pips) is manually set by the client for each account, with typical values ranging from 0 to 1000 integers.
Other settings may include:
These individual trade settings, such as those offered by RannForex, empower traders to tailor their execution preferences to their risk tolerance and trading strategy. More details on these options can be found on the RannForex trading settings page.
Both positive and negative slippage are realities of Forex trading. While positive slippage is a welcome occurrence, negative slippage represents a risk that traders need to understand and manage. By utilizing available tools and broker settings, traders can better control their exposure to unfavorable price execution and make more informed decisions in dynamic market conditions.
Top-notch technology from AMTS Solutions. The best trading conditions from RannForex. The reputation of Dmitry Rannev.