What is slippage and re-quote in Forex?

In finance, slippage is the difference in price that can occur between the time a trade order travels and its actual execution.

What is slippage in Forex?

For example, Forex slippage can occur when you place an order to buy EUR/USD at 1.2300 and trigger at 1.2305. In this case, the trader negatively “slipped” by 5 points.

Indeed, between the time we place an order on the trading platform and its execution in the market, there can be a very short time during which the price can move.

This price movement between the requested rate and the received rate is called Slippage.

Slippage in Forex and trading

How does slippage in the Forex market affect your trading?

Every trader should be aware of the risk of slippage as it can impact performance.

In Forex, slippage can affect performance in several ways:

• Moving away from the desired rate: If the current price received is far from the desired rate, this may reduce or increase the number of pips earned.
• In case of high volatility, the stop loss may not be met and we end up closing with a larger loss than was calculated by applying the stop loss.
• Order Failure: If the trader wishes, he can limit the risk of slippage by specifying a maximum deviation above which the order will not be executed. In this case, the trader may miss a trading opportunity due to his order not being executed. The MT5 trading platform offered by Admiral Markets allows you to determine the maximum slippage allowed. You can also limit slippage on MT4.

Can slippage be beneficial for a trader?

Slippage in finance has a general definition of risk for a trader. Indeed, slippage is a financial risk, but sometimes it can also play into a trader’s favor.

The difference in order execution can be in the opposite direction of the position, which adds a pip to the win or reduces the loss. In this case it is positive slippage rather than negative slippage.

However, since the risk of slippage remains unknown before execution (negative or positive), a trader will generally seek to avoid it or reduce it as much as possible.

Liquidity problems

Such presence of supply and demand indicates the presence or absence of liquidity.

Therefore, the first reason for slippage can be designated as Liquidity .

In this case, several options are possible.

Let's imagine that the order size is larger than the upper layer of liquidity. It is also possible that there is very little liquidity left, or you were asked for some very large order.

Your order is split into parts and routed to multiple broker liquidity providers. As a result, the trader receives a weighted average price, which may be worse or better than the price he specified. In such a situation, the order slips partially.

If the liquidity provider sends an execution refusal, then there may have been a delay and your order was sent to another liquidity provider. Some time has passed, and the market supply at your desired price has gone away. As a result, the presence of a different price and the corresponding refusal of the broker to execute your order.

Very often, during news releases, there is a problem with liquidity and orders fluctuate greatly.

Why is this happening? Many banks and institutions that act as liquidity providers are leaving the market to protect themselves from sharp price increases and possible losses. At the same time, spreads widen as brokers want to protect themselves from possible losses.

This is why traders face problems during major news releases. Spreads are wide, slippage is strong and it becomes much more difficult to make money.

Insufficient liquidity also occurs when trading exotic currency pairs. For example, with Turkish lira, African rands, or Russian rubles.

Those who traded during strong surges in the Russian currency should remember a certain period when many brokers simply turned off the possibility of trading in the ruble. The reason for this is the lack of liquidity.

Slippage and Forex and CFD Brokers

What parameters should be taken into account when choosing a broker to limit the risk of slippage?

The choice of broker is of particular importance in limiting the risk of slippage.

Indeed, if the broker offers sufficient liquidity, the faster the order will be executed and the greater the slippage limit will be.

Admiral Markets offers its traders one of the fastest order execution methods you can find and therefore there is less risk of slippage.

For the sake of transparency and trust, Admiral Markets provides order execution statistics for you to review.

Therefore, choosing a low slippage broker such as Admiral Markets is very important for your trading.

Technical problems

There is another reason for slippage - technical problems.

These include network delays between your trading terminal and the server, aggregator and liquidity providers, as well as a trivial reason - weak Internet.

In this regard, I would like to tell you that especially large Wall Street businessmen rent buildings near the center so that orders reach trading servers as quickly as possible, saving the smallest fraction of a second.

For us, it will be enough to have a fast and stable Internet. After all, we live very far from Western servers. And our brokers’ trading servers are often located outside of Russia.

Factors and reasons for slippage in trading

How can we combat slippage?

In addition to the execution speed offered by the broker, which a trader must be attentive to before his trading activity, there are other factors that must be monitored.

• Volatility. The main factor to monitor is, of course, market volatility. The higher the volatility, the higher the risk of slippage. Did you know that Admiral Markets offers its traders a range of tools to protect against volatility?
• Gaps: When a gap forms, often when markets are reopening, if the order is in that price zone, it can be filled at a gap to the requested price.
• Economic publications. In the most important economic publications, we sometimes see a combination of the two previous factors, volatility and gap. These market phases therefore have a high risk of slippage.

Is it possible to have zero slippage?

Yes, slippage 0 exists. It is possible to minimize the risk of slippage in the stock market until it is reduced to zero, subject to market conditions. That is, when volatility is low enough.

Requote: similar, but not the same

The situation looks approximately the same, but the market nature of the phenomenon is completely different. Let us remind the reader what the transaction execution mode is.

MarketExecution – the order will be opened in any case, but only at the current market price (with slippage). The trader receives a certain average price, and the exchange is not interested in whether it will be profitable. But it always gets done quickly.

InstantExecution – the position (the entire volume!) must be opened strictly at the order price (slippage = 0). If there is no accuracy of the 5th (4th) digit of this price in the market flow, or the volume of counter orders is too small, then the system generates a request offering a different price, and until you make a decision - “Confirm” or “Cancel”, the order will not work. It is this moment that is usually called a requote. By the way, while you are thinking, the market moves on, the offered prices become irrelevant, the requote appears again, etc. And the trading moment passes by.

But you can fight this: you need to agree to some maximum deviation from the price. How much to bet? 2-5 points are enough and the broker will always let you into the market.

Forex slippage and stock market slippage

Is Forex slippage different from stock market slippage?

In terms of definition, slippage in finance remains the same regardless of the underlying asset. This will always be the difference in price between the rate requested and the rate received.

However, in practice and in the way this is managed, some differences remain:

• In Forex we usually count slippage in pips, but in stocks it's in the money. In the same way, it will be taken into account in points for stock indices. For example, for DAX slippage we will talk about the number of pips of difference, while for EUR/USD slippage we will consider the number of pips.
• The risk of gap slippage will be more pronounced in stocks that have daily and weekly closes than in Forex, which has only one weekly close.
• Depending on the nature of the economic release, the risk of slippage will be more pronounced in Forex and equities. For example, on inflation indicators, we will monitor more forex for slippage, as well as company accounts and related actions.

Is it possible to reduce losses?

Can. Just don’t freak out and fight the market. Try:

• Don’t be a cheapskate and still put some play in the terminal for the price

If the price gap is greater, the order will simply not be executed (attention - it will not be closed either!). There is less profit, but the chance of making a loss is reduced.

• Use pending orders: trend BuyStop/SellStop and reversal BuyLimit/SellLimit

Stop-delays are actually more problematic, since they need an exact fixed price. Limit orders are more democratic because they use a high-quality “higher/lower” filter. Defenders are visible in the order book in advance and liquidity is actually “reserved” for them, due to which they have a better chance of working at the order price.

• Trade on higher timeframes

An order on M5, which has a margin of profit of 5-10 points, will really suffer from the loss of 1-3 points due to slippage, and on H1 a deal with an eye on a profit of 30-50 will not even notice such nonsense.

• Do not enter the market on problematic liquidity

If you “catch” speculative or low volatility (force majeure, gaps, exotic assets, news), then get ready for an increase in losses from slippage and requotes by 5-10 times.

• Use modern equipment and high-speed communication

A backup channel and equipment are required. Low connection speed and weak technical resources are an excellent platform for draining your deposit.

If problems arise even in a normal market and liquid assets and generally become chronic, then you should either change the type of account or look for another trading platform.

Slippage and spread

How is slippage different from spread?

First, let's remind you what a spread is. A spread is the difference between the purchase price and the sale price of a currency pair or other asset. It can be fixed or variable and represents the broker's fee.

To learn more, read Admiral Markets' complete guide to spreads and understand the importance of narrowing spreads.

Specified and displayed in real time on the trading platform, the spread represents a known value before the order is opened, while slippage, if any, can only be known after the order is executed.

The initial cost of the trade consists of the spread and any unexpected and unknown slippage.

Slippage has a definition in finance that is very different from the definition of spread.

Slippage and Expert Advisors

An Expert Advisor or Expert Advisor is an automated trading program. In Metatrader 4 the programming language is called MQL4.

Among the parameters to be adjusted, the programmer must define the maximum slip.

Selecting a slippage of 0 may be too restrictive and a trader may miss out on several trading opportunities by rejecting low slippage trades.

On the other hand, slippage that is too wide will allow EA to enter positions in very high volatility phases with the risk of severe slippage.

There is no “ideal” maximum slippage value, but it is usually recommended to set the difference to about 2 times.

Therefore, slippage in MQL4 or slippage in MQL for EA is a parameter that needs to be calibrated correctly.

Metatrader slippage can also be adjusted manually before opening an order.

Slippage and VPS

Does trading with a VPS reduce the risk of slippage?

VPS or English "Virtual Private Server" is a virtual private server.

One of the benefits of trading with a VPS is getting an optimal connection and therefore faster order execution.

This clearly helps reduce the risk of slippage, but complete elimination of such risk cannot be guaranteed.

VPS slippage can be significantly lower than “regular” slippage.

About us: Admiral Markets

As a regulated broker, we provide access to the most popular trading platforms in the world. You can trade CFDs, shares and ETFs with us.

This material does not contain, and should not be interpreted as containing, investment advice, investment advice, or an offer or solicitation of any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future trading as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

So is this good or bad?

This is fine. This is the first sign that you are actually entering the real market through your broker. It’s not for nothing that the slippage effect is present on all types of accounts with MarketExecution (ECN, NDD, STP). The presence or absence of slippage and requotes does not cancel or even reduce the overall risk of trading on Forex; no one will compensate you for these additional losses. You will have to adapt both yourself and your strategy to this phenomenon, and the methods suggested above will help protect your deposit as much as possible.

Profits to everyone!