What Is Slippage?
Slippage occurs when a trade is executed at a different price than the one you requested. If you place a market order to buy EUR/USD at 1.0850 and your order fills at 1.0852, you have experienced two pips of positive slippage in reverse, meaning the market moved against you between the moment you submitted the order and the moment it was filled.
Slippage is a normal part of trading in any financial market. It is not a broker error or malfunction. It is a consequence of the time delay between order submission and execution, combined with the constant movement of market prices.
Why Does Slippage Happen?
Several factors contribute to slippage in forex and CFD trading:
Market volatility:
during high-impact news events such as Non-Farm Payrolls (NFP), central bank decisions, or major geopolitical announcements, prices can move tens of pips in fractions of a second. Any order submitted during these windows is at significant risk of slippage.
Low liquidity periods:
during the Asian session or around market open and close, reduced liquidity means fewer counterparties are available to fill orders at the exact requested price.
Order size:
very large orders can exhaust liquidity at one price level and partially fill at less favorable levels, a phenomenon known as market impact.
Broker execution speed:
slower order processing technology increases the window between order submission and execution, increasing the chance of slippage.
Positive vs Negative Slippage
It is important to note that slippage can work in your favor as well as against you. If you submit a buy order at 1.0850 and the market fills you at 1.0848, you have received a better price than requested. This is positive slippage.
In practice, slippage during normal market conditions tends to average close to zero over many trades, with positive and negative occurrences roughly balancing out. However, during high-volatility periods, slippage is almost always negative because prices are moving rapidly in one direction.
How Slippage Affects Stop-Loss Orders
One of the most significant practical consequences of slippage is its effect on stop-loss orders. In fast-moving markets, your stop-loss may be triggered but filled at a worse price than set. For example, if your stop is at 1.0800 and the market gaps through that level during a news event, your order might fill at 1.0790, resulting in a loss 10 pips larger than planned.
This is known as stop-loss slippage, and it is one of the key reasons why proper position sizing and realistic stop placement are essential components of risk management. For a complete guide to protecting your capital, read our article on risk management in forex trading.
How to Minimize Slippage
1. Use Limit Orders Instead of Market Orders
A limit order instructs the broker to execute your trade only at your specified price or better. Unlike a market order, a limit order will not fill at a worse price than you set. The trade-off is that the order may not fill at all if the market does not reach your level.
2. Trade During Peak Liquidity Hours
The London session and the London-New York overlap are the periods of highest liquidity in the forex market. Tighter spreads and more available liquidity during these hours reduce the probability of significant slippage. Trading during off-peak hours, particularly the late Asian session, carries higher slippage risk.
3. Avoid Trading Around High-Impact News
Unless your strategy specifically targets news volatility, avoiding order placement in the minutes immediately before and after major economic releases will significantly reduce your exposure to slippage. Reviewing the economic calendar before each session is a simple but effective habit.
4. Choose a Broker With Fast Execution
Execution speed matters. Brokers with direct market access, such as ECN brokers, typically provide faster and more transparent execution than dealing desk models. Bullwaves offers ECN account execution on MetaTrader 5, providing direct access to liquidity providers and minimizing unnecessary processing delays. You can compare execution models across Bullwaves account types.
Slippage in Automated Trading
Slippage is also a critical consideration for traders using Expert Advisors (EAs) or automated strategies on MetaTrader 5. Many EAs include a maximum slippage setting that prevents orders from executing beyond a defined tolerance. Setting this parameter appropriately for the instrument and session you are trading is important for maintaining the integrity of your automated strategy.
For more on the features available for automated and manual trading, visit the Bullwaves platform page.
Final Thoughts
Slippage is an unavoidable feature of live market trading. Understanding when and why it occurs allows you to make informed decisions about order types, session timing, and position sizing. With the right habits and execution environment, its impact on your overall trading performance can be managed effectively.
Risk Warning: All trading involves risk of financial loss, including potential losses amplified by slippage and leverage. Trade only with funds you can afford to lose. Bullwaves is regulated by the Financial Services Authority (FSA) of Seychelles under Equitex Capital Limited.
