What is order slippage?
Order slippage is the execution of an order at a price different from the price you specified when you set the order.
For example, we put a stop loss at 9,300 and it is executed at 9,290. This difference will be called slippage. Slippage can be positive, i.e. at a price that is more profitable for us. It happens on orders of the “Take Profit” type and very seldom on orders of the “Stop Loss” type. In general, orders are executed as in the example above, at a price that is not profitable for us. There is nothing wrong with that. Let’s talk about it below.
Many beginners think that slippage is bad and it shouldn’t be that way. That their broker is cheating and deceiving them in some way. Very often you can read on the forums how the beginners are trying to find the broker which executes orders without slippage. Well, it does not happen.
Slippage is a good thing, because it is a sign of the reality of the market. It confirms that you are really trading on the interbank market. Pseudo-broker companies, which promise to execute “stop” orders of clients at the prices specified in their orders, probably are “kitchen” and do not bring the deals of clients to the market, because if the broker brings the deals to the market and thus guarantees the absence of slippage, it means that he takes the loss equal to the difference between the price at which he executes the client’s order and the price which will actually be on the market at the moment of execution of this order. For these reasons, no real financial institution will give you guarantees that there will be no slippage. Therefore, slippage at the exchange is quite a normal phenomenon.
The main causes of order slippage are:
- Due to the high “volatility” of the market. It means that the change of the price on the market happens with such speed that the new order has no time to open at the bid price. Very often this happens when there are important economic news. By the way, it is not recommended to open a position before the news, since with a strong price movement in your direction, the order most likely will not work at all. Also, slippage can happen after a gap (price break). It is a situation when the close of the previous trading session is not the same as the opening price of the next trading day. So you need to be very careful about moving your position to the next day, especially if you trade intraday with short stops.
- Low liquidity in the instrument. Very often there are strong slippages in such instruments, especially when entering a position with high volume. So it is necessary to choose trading instruments wisely.