What is Slippage

Q. What is "Slippage"?

The short answer is that slippage is what happens between the time you place an order to buy or sell a currency and the time that your oder is filled, i.e., the time that the transaction is completed. In most cases, in a fast-moving volatile market such as EUR/USD (Euros and US Dollars), from the time you place an order until the time it is filled the exchange rate will often change anywhere from $.0002 to $.0003 from the price you saw and wanted to get when you placed your order, even with the fastest automatic electronic ordering software. If you are trading by hand, i.e., sending your order to your broker via a non-automatic signal generating platform, then you can expect slippage to be as much as $.0010 to $.0015!

So, let's say you placed an order with your Market Maker broker to buy Euros at $1.2825. If the market exchange rate is changing moderately fast when you place your order, your order might not get filled before the rate has changed to $1.2827. The difference between the two rates, in this case $.0002, is called the slippage on the trade and would, if you were trading regular lots, translate to a difference of $20.00; $.0015 slippage would translate to a difference of $150.00. Slippage is very common in trading Forex and in some cases can make a trading system that appears to be a winning system on paper, actually lose money. Even though a properly evaluated trading system will take into account slippage and project it as a part of every trade, unscrupulous system developers do not make allowances for and do not take into account slippage when stating the profitability of a system. All Winning Forex Systems take into account and make a realistic allowance for slippage before determining that system's profitability.

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