Who said slippage always goes against you?! Probably your broker.
Forex slippage is an example of a pretty normal forex trading occurrence that
is usually spoken of as a bad thing. When it goes against you it is,
but slippage can also work in your favour.
Here at FXCC, we treasure transparency. Since we have
nothing to hide, here’s the real story about slippage.
Slippage is defined as the difference in pips between the order
price and the execution price for a particular transaction.
For example, you ordered to BUY 1 lot of EURUSD at the Market
Price of 1.35050, the order was sent out through MT4 to the
liquidity provider and then the confirmation message comes back
informing you that your order was executed at 1.35055.
Slippage = 1.35050 - 1.35055 = -0.00005 -> -0.5 pip EURUSD = -5 USD
You just lost 5 USD in slippage. It could happen even with an ECN broker when
you’re trading at market price due to the fact that prices move so fast, they
could change before your order reaches the Liquidity Provider for execution;
blame it on network speeds and market volatility.
Interestingly enough though, and this is what most brokers rarely tell you,
slippage can actually work in your favour as well. Take the example trade and if
the price changes from 1.35050 to 1.35045 you’re actually $5 better off just
from the positive slippage.
Shocking – but true. It’s what we call Price Improvement and it’s the part of
slippage some brokers like to keep to themselves.
Here’s a little secret: Trade with FXCC ECN broker and shocking stuff like price
improvement is one of the things you’ll have to get used to. All part of what we
like to call “The truth, the whole truth and nothing but the truth”. FXCC style.