✔️ Information reviewed and updated in April 2024 by Pedro Martínez González
In order to take full advantage of the full potential offered by Trading platforms, some concepts must be taken into account. One of them is the Slippage which influences your experience of use and results, that is why here we will tell you everything about this concept.
➜ The definition of Slippage
Also known as slipDue to its translation into Spanish, the Slippage is a concept that you may know in practice, but as such its name is sometimes difficult to remember.
Defining Slippage is very simple because it is about the difference between the expected buy-sell price, which appears when you place an operation or order, and the price at which it is actually executed. And we must remember that if there is something that distinguishes markets is their dynamism, since they change suddenly and continuously.
We must remember that in the time it takes us to place an order, for example, the market has already changed many times. That is why the transmission time between the user and the broker, also known as latency or speed, must be the minimum to reduce Slippage. This translates to greater efficiency and certainty (and speed) in your operations.
Slippages can happen at any time, although they are more common when there is greater volatility and less liquidity; for example, the CFD market is the one that tends to show the greatest slippage. We must be attentive to the news and changes, since the markets are always in constant evolution with many ups and downs, with constant oscillations.
➜ Why are Slippages generated?
There are many situations that generate slippage, these are the main ones:
- ✅ The asset or security suddenly changes its price while you are placing your order, usually due to other traders performing operations.
- ✅ The broker where you operate simply cannot find a counterpart, so place your order with the best possible price, which happens due to the volatility of the markets. Here we can also locate the gaps between prices.
- ✅ There are no GAPS (spaces) between the closing price and the starting price of the operation.
- ✅ There are broker platforms that slide or slippage with the lowest possible price in order to earn more profits.
- ✅ The speed of data transmission and the internet network is essential. If the connection is slow, this can lead to more slippage.
- ✅ You are not creating the orders properly.
You must bear in mind that the markets are very volatile, especially during situations such as economic or political crises or conflicts (as is the case with oil and gold). That is why the causes of Slippage can vary significantly with time, the current situation and the broker.
➜ Types of Slippage
There are different Slippages which, believe it or not, can be beneficial, but also There are Slippages that are negative, so you must know and know how to identify landslides in order to be cautious, or, on the contrary, take advantage of them if they are positive Slippages.
A negative slippage happens when, for example, you open a trade for $ 1 and it ends up being executed at $ 2. This means that the initial price and the final price changed significantly, which was a loss for you. The degree of negative slippage can vary depending on the market situation.
On the other hand, positive slippage occurs when this phenomenon happens in reverse, that's right, you end up buying an asset or an order at a lower price than expected. This type of slippage is rare and, of course, many brokers do not return the balance in your favor.
➜ 💡 How to avoid Slippage?
To avoid Slippage, keep these points in mind:
- 🇧🇷Low volatility and more liquid markets
One of the frequent causes of slippage is due to the high volatility of the markets. To reduce the risk of Slippage then you should look for markets that are much less unstable and fluctuating.
For example, the Forex can be a good option, since this market offers less volatility. Having a high liquidity is another point that you must take into account, since this will help you to reduce slippage.
- 🇧🇷Avoid moments of uncertainty ❌
What happens when you buy assets like oil in the middle of the war in the Middle East? Or what happens when you decide to invest in shares of companies in the middle of the trade war? That's right, you can be the victim of a negative Slippage, since these assets will be in a swing of ups and downs due to the instability of the market.
To avoid being a victim of landslides, you must learn to take actions, as far as possible, in moments of less uncertainty, or at least in markets that are not in full crisis. While this may be difficult at first, practice will help you improve.
- 🇧🇷Correct orders
There are different types of orders that can help you make trading at your broker much safer by avoiding Slippage. For example, pending orders are executed only when certain conditions are covered which you have previously set as a price or certain stability.
Another type of order that can help you reduce the risk of slippage is the limit entry order. This type of order is a kind of programming where the order is only executed if the asset reaches the indicated price or if it is even better than what we set as a limit.
- 🇧🇷A trusted broker ????
Finally, one of the techniques that will help you the most to reduce the risk of Slippage is to trade through a trusted broker that has the option to avoid slippage. This is essential for your operations to go smoothly.
A great example is brokers with high speed connections which make data transmission and orders done faster reducing the risk of slippage.
📌 You should also take into account the speed of your internet, the speed of your device (be it a computer, tablet, mobile phone), the conditions of the platform and its functions, as well as the market in which they operate. 📌
Very good explanation, it has clarified my doubts and I have understood it perfectly! Thank you!!