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One of the most frustrating things about forex
Dear Subscriber,
I know you get frustrated about this one...
You place your new trade (order to open) at your forex entry price and you leave your computer.
When you check back, your trade has been filled.
That's cool. But what's not is that it's been filled at a different price!
What happened?
You placed an order to sell at 1.4967 but it got filled at 1.4963.
Where did those 4 pips go?
Well, this is what's known as 'slippage'.
It feels like you've been robbed in pure daylight.
And it seems so unfair. But why does it happen?
Before you go to lunch, lock-in a
£112 tax-free
If you can spare five minutes in your Friday lunch hour then you could do this.
You don't need an ounce of experience. Just access to the internet and five minutes at lunchtime on a Friday.
Got that and you could start locking in tax-free profits of £37, £44, even £180 next Friday.
Why this frustrating trading
quirk happens
As you well know, the forex markets can be volatile. The prices can move extremely fast.
And though sometimes the market idles along like a snail, at any moment it can suddenly jump in a huge way.
In seconds the price shoots though the roof.
That's why 'slippage' happens: the price moves so fast that even the spread betting company's computers can't catch it.
Your trade then gets filled at the next best price to your entry price.
And that's how your 4 pips went up in smoke.
Too right it's annoying; it all adds to your trading costs.
And let's face it, if you're trading £2 a pip, that's £8 you'd have to make up. It's just not funny.
But it's not really worth getting too het up about.
Sure, it's good to check with your spread betting company to make sure there hasn't been a mistake their end. But you need to understand 'slippage' is often just a hazard of trading forex.
And not just forex, 'slippage' is a problem in all financial markets.
In fact, the stock market suffers a lot more from this trading quirk than forex.
But it still does happen from time to time in forex and when it does, it's important to know that as well as your entry price, it can affect your stop loss order too.
Remember a stop loss order is an automated trade order to close your position at a certain price to minimise your loss.
This means if there is slippage, your stop loss order may not be filled at the price you wanted.
So, if your trade did not go your way, it's possible you could lose more than you were prepared for on the trade.
But in my experience, this is very rare.
Having said that, it does depend on what currencies and the times you trade.
To reduce the risk of your stop loss being hit by slippage, some spread betting companies offer 'guaranteed stops'. But they do charge you a higher spread.
Personally I don't like the higher spread, so I don't use guaranteed stops.
But I only trade the major currency pairs which have the highest trading volume.
I also prefer to trade at the most liquid times of the day.
That way, whilst I know 'slippage' is still a potential hazard of my trading...
It's less likely to spoil my day.
Best wishes,
Richard Hill
Editor
Forex Round-Up
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