Slippage explained | Forex Factory

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Slippage explained

  • #1
  • First Post: Jun 25, 2013 12:52pm Jun 25, 2013 12:52pm
Once I talked to support of one Forex broker company and they told me that slippage occurs because of nature of stop/limit orders and gave example:

If buy order was opened at 1,5000 and SL on 1,4900 and TP on 1,5100 and price goes down, SL will become active when price come to 1,4900 and then execute at first available price, sometimes few pips lower. Since TP price is higher then current price, it can be put to market immediately and wait for other side of the trade, so it can't be skipped, so no slippage can happen at TP.

It would mean that on sell order is all opposite, SL goes immediately to market since higher price is not reached and TP will became market order when lower price is reached, so slippage can't happen on SL and can happen on TP.

And that makes sense, but in reality it goes differently.

At my current broker that claims its ECN, and it is very respected in the community, I have experienced both positive and negative slippage, on SL and TP, on buy and sell orders in the way that above explanation says it is impossible.

I would like to find out how is it really done. If someone knows how are orders actually executed, can you please explain how it happen on SL, TP, sell and buy orders?
  • #2
  • Jun 27, 2013 4:04am Jun 27, 2013 4:04am
Nobody knows how are orders executed?

No wonder 95% traders lose in this business
  • #3
  • Jun 27, 2013 5:39am Jun 27, 2013 5:39am
It all depends on the type of order being used on TP and SL. Broker must have assumed the sensible option of a limit for TP and stop for SL. Your experience suggests you use stop orders for both SL and TP, hence slippage on both. See attached doc here... http://www.forexfactory.com/showthre...99#post6758699
  • #4
  • Jun 28, 2013 5:10pm Jun 28, 2013 5:10pm
Thanks for answer, I have read your PDF, its great! But it still not explaining positive slippage on buy order TP.
What do you mean with this that I use stop order both on SL/TP? I use regular TP/SL on Metatrader, TP on buy orders would be limit order, right?

Here is example of positive slippage on buy order TP that I don't understand. According to broker it shouldn't happen and if I understand well from your PDF, you also say this shouldn't happen. Can you please check what happened in this example?

(Here I actually got 3 pips better price then I wanted, so I profited, but I would like to learn why does these situations happen?)

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  • #5
  • Jun 29, 2013 3:44am Jun 29, 2013 3:44am
I don't know how trading with MT4 works, but a stop order is simply a market order which isn't executed until the trigger price is hit. So if you sell, your stop loss will be a buy stop order above market, and your take profit will be a buy stop below market. In either case you are using a buy stop order, i.e. an order which becomes a buy market order when the price is "hit". And vice versa for a long position.

Since market orders simply execute at the best available price, they are prone to slippage as the market may have moved before the orders are fully filled (or before your broker/dealer fills you). So in your example, though I don't know how you could have gotten three pips of slippage unless the market was extremely volatile during that time, you might have had a TP (sell stop order) at 9260, but by the time your order was executed the market was trading say 9263/9265, so your sell was filled at 9263. Which is why I assume the market was very volatile at that moment, otherwise there's no reason you should have been slipped three pips (positively or negatively - same difference). Unless it's just that MT4 really is as shitty for trading as people say. If you order is stored on MT4 locally rather than with your dealer, then that's some insane latency and that would also explain why you'd experience such incredible slippage even without a very volatile market.

Mind you this is slippage from the perspective of trading with a retail dealer, not trading on a "real" market - slippage from that perspective is covered in the document I linked.
  • #6
  • Jun 29, 2013 8:19am Jun 29, 2013 8:19am
Good explanation eurotrash!
Cheers!
  • #7
  • Edited 10:06am Oct 3, 2013 9:52am | Edited 10:06am
I have a live trade example that I couldn't understand the mechanism behind the slippage. It's on GBP/JPY and I had a 19pips (automatic) trailing stop riding the short sell. At 8:30amET price spiked to 158.232 upon release of U.S. Unemployment Claims.

The printed low at that point was 158.081 and my 19pips trailing stop was registered correctly at 158.270 as seen in the trades history. But that 8:30amET news spike was still 4pips away from my trailing stop (158.270 minus 158.232), so how can my trailing stop be triggered and filled at 158.30 off the printed bars? Without this slippage I could still be trailing this short sell to even lower prices.

I haven't spoken to my broker because honestly this is a ECN micro account. But I just want to understand the mechanism to educate myself (not interested in bashing brokers), it is always good to know how to make claims in future occurrences. Hopefully someone here can understand this case example and help explain what happened with this bad fill. Thanks.
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No longer trading forex. Looking for full time job.
  • #8
  • Oct 3, 2013 5:22pm Oct 3, 2013 5:22pm
I suspect your chart is showing the bid, whereas your buy stop order would be triggered by the ask. Due to the news I'd expect the spread to have been widened significantly, so the ask could have easily triggered your stop even if the bid didn't trade anywhere near there.
  • #9
  • Oct 3, 2013 11:47pm Oct 3, 2013 11:47pm
Most of the traders start with MT4 FX broker and never have the chance how the market actually works. I think this is the main reason why 95% fail. Market mechanics are pretty simple. There are prices and at every price orders of certain size. Unfortunately this is a decentralized (OTC) market and only the dealers at NY and London FX desks fo the biggest banks know what is going on. Let's say that at the current ask there are orders for 10M and at every pip orders for the same size. If someone wants to buy 30M should be filled orders at different level until this order is filled. What you will see on your quote board is 3 pips tick. If you fill your order at the same time you will have 3 pips slippage. During the news major participants withdraw their orders. I've seen spread of 20+ pips on the trading platform of one of the biggest banks. This means that after the news is released the first available price is 10 pips away.
  • #10
  • Oct 7, 2013 6:25am Oct 7, 2013 6:25am
Quoting eurotrash
I suspect your chart is showing the bid, whereas your buy stop order would be triggered by the ask. Due to the news I'd expect the spread to have been widened significantly, so the ask could have easily triggered your stop even if the bid didn't trade anywhere near there.

I cannot completely understand this, but with you have just said, would using a fixed spread have fixed this situation. One thing I do understand about slippage is that it happens during order execution. I have experienced it only once with the USDJPY pair. If I use a fixed spread, then the spreads would not widen even if there is a major news release. Am I right?
  • #11
  • Oct 7, 2013 8:22am Oct 7, 2013 8:22am
Quoting forexlordz
{quote} I cannot completely understand this, but with you have just said, would using a fixed spread have fixed this situation. One thing I do understand about slippage is that it happens during order execution. I have experienced it only once with the USDJPY pair. If I use a fixed spread, then the spreads would not widen even if there is a major news release. Am I right?
Yeah you seem to understand it. You sell the bid and buy the ask. If you're short, your stop loss is a buy order. If the spread widens, the ask goes up (and the bid goes down... all things being equal). If the spread widens enough that the ask reaches the price of your SL, your SL gets triggered. The bid meanwhile may never have reached that price. If the chart only shows the bid, it looks like the market never traded there but you were somehow filled. If you changed the chart to show the ask, you'd probably see a different picture.

Fixed spread may get around it, though I don't see how they could remain fixed in volatile news events. If they do then it may help prevent getting stopped out by the widened spreads, but I suspect trying to trade during that time would result in many requotes. More likely it would only be fixed during normal times... maybe during news they'd give you a wide "fixed" spread, like Oanda and their hilariously wide fixed 50 tick news spreads in some fixed income cfds.
  • #12
  • Edited 6:19am Oct 9, 2013 5:29am | Edited 6:19am
I considered this my mistake to place BUY orders so close to GBP news (4:30amET Manufacturing Production m/m). The slippage on this ECN broker was 36pips from my Stop Loss. I was told another broker had smaller slippage on this gap down, but not going to make any claims for this.

1.60304 minus 1.59938 = 36.6pips
1.60304 minus 1.59945 = 35.9pips
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No longer trading forex. Looking for full time job.
  • #13
  • Oct 10, 2013 1:05am Oct 10, 2013 1:05am
hi mmaker,

i was trading the very same long as you, live on my journal i had my stop at 4 points after price initially went up.the news spike gapped my stopp i got stuffed for over 40 pips,which was expensive !

having said this,my method of trading takes me into news release and i have had more in my favor than against ,albeit 2nd big one in the last few weeks.

i can solve this problem with not trading into news,or i can get guaranteed stops if i pay a larger spread 6 pips i believe,havnt decided what i shall do yet.
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  • #14
  • Oct 10, 2013 1:21am Oct 10, 2013 1:21am
prior to data, i place sell stop 1.6025 before gbp news yesterday. slipped into 1.5997 within that 1-5sec/ 1 minute .

sometimes it just like that, my number don't coincide with a seller there or stop there from my broker's LP, to hang abit to make the entry i want before the drop. it just dive to the next number.
  • #15
  • Oct 10, 2013 1:57am Oct 10, 2013 1:57am
Quoting mmaker
{quote} Interesting to know you took a long there. I reviewed the trade and thought it was a bad decision to enter so close to new release. I had a rule not to do it, but somehow was distracted or not focused enough to stop myself from taking the trade. In my view, looking for guaranteed stop will just encourage you into doing more of such trades which I'm not in favor. But up to you.

the reason i trade into news is prior pricing,as ive said in balance i am positive return overall,but the last two occasions when i was wrong the slippage has been much larger.i think your right i shall be very selective before such trades in the futer
  • #16
  • Oct 10, 2013 2:12am Oct 10, 2013 2:12am
Quoting diceman555
hi mmaker, i was trading the very same long as you, live on my journal i had my stop at 4 points after price initially went up.the news spike gapped my stopp i got stuffed for over 40 pips,which was expensive ! having said this,my method of trading takes me into news release and i have had more in my favor than against ,albeit 2nd big one in the last few weeks. i can solve this problem with not trading into news,or i can get guaranteed stops if i pay a larger spread 6 pips i believe,havnt decided what i shall do yet. {image}
The price is not moving that much after news releases as a few years ago. Most of the major CBs are printing money and the market is not expecting this plocies to change soon. That is why the response to economic data is still muted. If you have 20 pips initial reaction and 20 pip slipp it doesn't make sense. It is more like gambling.
  • #17
  • Oct 10, 2013 3:05am Oct 10, 2013 3:05am
Quoting srmfx
{quote} The price is not moving that much after news releases as a few years ago. Most of the major CBs are printing money and the market is not expecting this plocies to change soon. That is why the response to economic data is still muted. If you have 20 pips initial reaction and 20 pip slipp it doesn't make sense. It is more like gambling.
quite agree,whilst typing the last post i was thinking the very same thing.
  • #18
  • Oct 10, 2013 3:08am Oct 10, 2013 3:08am
Quoting diceman555
{quote} quite agree,whilst typing the last post i was thinking the very same thing.
I was trading the news releases until 2006. Great times. No slippage and initial reaction of 20+ pips. After NFP usuaully 100+ pips.
  • #19
  • Oct 10, 2013 3:34am Oct 10, 2013 3:34am
use a highly correlated currency(95%+) eg. USDCHF to trade NFP.
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #20
  • Nov 8, 2013 10:27am Nov 8, 2013 10:27am
Quoting pemully
use a highly correlated currency(95%+) eg. USDCHF to trade NFP.
Could you explain this further ?
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