When you start to learn forex trading for beginners, you will meet a lot of terms. You need to get familiar with these terms. It is one of the first things you need to do while trading forex if you are one of those potential traders asking, is forex trading profitable?
Slippage is one of the common terms you will certainly encounter as a forex trader. What does this mean?
Slippage is the variation in the price difference between the price displayed for a currency pair and the price you pay. For instance, the EUR/USD pair you want to buy may display the ask price of 1.1267 while you click on the buy tab. But when you look at the price that is filled for you, you would see 1.1269. The slippage is the difference between these two prices and in this case, it is two pips.
Slippage is not essentially a deceptive act. However, in the past before the forex market become as regulated as it is currently, many brokers use this means to take advantage of their traders. However, these days, forex brokers and the forex market are much more regulated.
While there are unscrupulous brokers that operate without regulation you should never have anything to do with them. If your present broker is not regulated, the best thing you can do for your safety and that of your money is to withdraw all your funds and transfer them to more reputable forex brokers.
Slippage hardly occurs during regular trading because of the high liquidity of the forex market. Some currency pairs slip more than others. Examples of these are the NOK/JPY pair. This is because the currency pair will unlikely come with trade volumes as large as that of the major pairs like the USD/CAD pair. The spread in these pairs is commonly higher.
How to prevent slippage
If you want to prevent slippage on your trading orders, you need to tell your forex brokers your limit order. This tells the broker the price you are willing to pay. So, when the market skips your price, it will not fill you. That means you only get to pay what you pre-set.
