Slippage occurs when an order is filled at a price that is different from the requested price.
The difference between the expected fill price and the actual fill price is the “slippage”.
Whenever you are filled at a price different from the price requested, it’s called slippage.
Slippage isn’t necessarily something that’s negative because any difference between the intended execution price and actual execution price qualifies as slippage.
Market prices can change quickly, allowing slippage to occur during the delay between a trade order being processed and when it is completed.
Slippage happens during high periods of volatility, such as during breaking news or economic data releases.
The major currency pairs are EUR/USD, GBP/USD, USD/JPY, USD/CAD, AUD/USD, and NZD/USD.
Examples of Slippage
Let’s say you are trying to buy EUR/USD with a price of 1.1050.
So on your trading platform, you see the price of 1.1050 being displayed and click “Buy”.
So 1.1050 is the price that you wanted your buy order to be executed at.
The final execution price vs. intended execution price will have one of three outcomes: no slippage, positive slippage, or negative slippage.
The order is submitted, and the best available buy price being offered is 1.1050 (exactly what you requested), the order is then filled at 1.1050.
The order is submitted, and the best available buy price being offered suddenly changes to 1.1045 (5 pips below your requested price), the order is then filled at this better price of 1.1045.
The order is submitted, and the best available buy price being offered suddenly changes to 1.1057 (7 pips above your requested price), the order is then filled at this price of 1.1057.
What Causes Slippage?
How does slippage occur and why can’t your orders be filled at the requested price?
A market consists of buyers and sellers.
For every buyer who wants to buys at a specific price and specific quantity, there must be an equal number of sellers who want to sell at the same specific price and same quality.
If there isn’t, there is an imbalance between buyers and sellers.
This is what causes prices to fluctuate and move up or down.
For example, if you want to buy EUR/USD at 1.1050, but there aren’t enough people willing to sell euros at 1.1050, your order will need to look for the next best available price.
That price must be higher (since there were no sellers at 1.1050), and this is what causes negative slippage. Let’s say that your order was filled at 1.1053. You experienced a negative slippage of 3 pips.
On the other hand, if there are a lot of people willing to sell their euros, your order might find a seller willing to sell at a price lower than 1.1050, such as 1.1048.
If your order is filled, then you were able to buy EUR/USD at 2 pips cheaper than you wanted. This is positive slippage.
Slippage can happen on stop loss orders! This means that even if you have a stop loss order entered in your trading platform as a pending order, if the market moves too fast, your order may not get filled.
For example, you bought EUR/USD at 1.1050, and have a stop loss order at 1.1030. All of a sudden, aliens attack Europe, and EUR/USD plummets. Your stop loss gets hit but you see that your fill price was 1.0930!
You experienced a negative slippage of 100 pips! 😱