Friday 14 March 2014

What is Slippage

   The slippage means is the time you place an order to buy or sell a currency on that time that your order is filled i.e the time your transaction is completed. In most of the cases the fast moving volatile market such as EUR/ USD from the time you will place an order until the time it is filled an exchange rate will often change anywhere from $.0002 to $.0003 from the price you saw and wanted to get when you placed your order, even with the fastest automatic electronic ordering software. If you  are trading by hand , i.e., sending your order to your broker via a non- automatic signal generating platform, then you can expect slippage to be as much as $.00010 to $.0015!
       So, lets say you placed an order with you market maker broker to buy Euros at $1.2825. If the market
exchange rate is changing moderately fast when you place your order, your order might not get filled before the rate has changed to $1.2827. The difference between the two rates, in this case $.0002, is called the slippage on the trade and would, if you were trading regular lots, translate to a different of $20.00; $.0015 slippage would translate to a difference of $150.00. slippage is very common in trading Forex and in some cases can make a trading system that appears to be a winning system on paper, actually lose money. Even though a properly evaluated trading system will take into account slippage and project it as a  part of every trade, unscrupulous system developers do not make allowances for and do not take into account slippage when stating the profitability of a system. All Winning Forex Systems take into account and make  a realistic allowance for slippage before determining that system's profitability.

2 comments:

  1. The term slippage is only used in forex only or will this be used in stock trading while using Intraday Tips.

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  2. Some of researchers, less use this slippage with doing KLSE stock analysis on the other.

    ReplyDelete