Traders' views - Forex

How to reduce slippage in forex trading

By Bastian Rubben, 26 Jul 2011

SunbirdFX facilitates forex trading and CFD products, offering a trading platform for currencies, metals, oils and indices. Sunbird's chief analyst Bastian Rubben will be writing about a variety of subjects in his regular new column for Bullbearings.

Many people who trade in the financial markets, especially those who engage in foreign exchange trading, do not pay attention to a very important aspect in trading that can cause great losses or reduce large profits.

What I am talking about is slippage, which is the gap between the forex price we ask and the price we get in the execution of an FX trade.

There will always be some difference between the prices, which sometimes we do not even noticed, but if you trade with a decent broker, you can control the damage done, even reduce slippage and find a way to live with it.

How much can you lose with slippage?

This following forex example emphasizes the direct influence that the slippage has on your accounts -it's not just for day traders in foreign currencies but for anyone who wants to receive the market's real prices.

Let’s say that you want to open a long position of one standard lot (100K) on the EUR/USD. The price that you ask is 1.4520. You press the button to send the order, and the execution has slipped to 1.4530, or 10 pips above your request.

It might not sound like the end of the world, but this slippage means that you just lost £100.

And if you multiple £100 with three trades a day (though the average is much higher) the result would be a loss of £300 in just one day. That means that you lose about £5,000-£6,000 every month - and all because of the slippage!

That is a significant amount for all types of traders.

How to reduce slippage

Obviously, due to technological reasons, there will always be some slippage between the requested price and the execution price. Nevertheless, you should find a broker that allows trading with minimum slippage that will not kill your account.

What should you look for? Brokers with advanced technology and systems, an ECN broker (Electronic Communications Network – basically meaning trades are processed by a computer) that broadcasts all of its clients’ orders straight to the market and provides the market’s real quotes and prices.

There are some great tools on the web for comparing slippage and performance, including Zulutrade.com (although let me stress that this is not a recommendation for ZuluTrade’s services, but only for a tool that compares between slippages of different brokers) here or here (click on the 'slippage' tab under the signal provider search).

I am proud to say that the broker that I work for, Sunbird FX, is ranked among the market’s lowest slippages, saving significant money for its clients.

You can also avoid large slippage in your current broker by not trading while high impact news is released or during 'dead' hours.

Have a great trading week!

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Warning: Remember, particularly if you are new to trading in the stock market and in forex, that the prices of shares and other investments can fall fast and you may not get back the money you originally invested. The material here is for general information only and is not intended to be relied upon for individual investment decisions. Take independent advice before making such decisions. Also, the BullBearings free stock exchange simulation portfolios are a good way to practice trading techniques.

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