Have you ever wondered why the system sometimes places your order at a different price than the one you placed at first? This occurs due to the thing known as "Slippage" in the stock market and forex market. 

Get to know Slippage

Slippage is the discrepancy between the point where the system generates a trading signal and the price at which you can actually trade. It is caused by many factors such as low stock liquidity, unusual market conditions and news. These are both positive and negative factors that affect the price during the day. However, it can also cause the price to move violently. 

Causes of Slippage

Slippage in Forex is caused by two main reasons:

1. You place an order during a volatile market.

In general, market volatility is highest just before and immediately after major news releases. This causes the price of the currency pair to fluctuate wildly, and you may not receive the expected price.

2. You place an order at the time the market is about to close and open.

During this time, there are few transactions and the market is extremely low liquidity. So you may not get the price you expect.

Advantages and Disadvantages of Slippage 

Slippage can be both an advantage and a disadvantage for forex traders, as it can either increase or decrease profits.

Advantages of Slippage

When you open an EUR/USD order at 1.10000 pips and the market slippage occurs. You will receive a better price at 1.09950. Therefore, when the order is closed, you may make more profit than the point you originally expected.

Disadvantages of Slippage

When you open an EUR/USD order at 1.10000 pips and the market slippage occurs. You will receive the price at 1.10050, which is even worse. So, when you close the order you may get less profit than the point you originally expected. 

Conclusion

However, slippage is something that most investors overlook, but even the slightest discrepancy in the price can increase or decrease your profit. Therefore, you should regularly follow the news of the currency pairs that you trade.

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