Slippage and execution speed are critical factors that affect the outcome of your trades. Slippage occurs when your order is filled at a different price than expected, while execution speed determines how quickly your trade is placed. This guide explains what slippage is, why it happens, and how execution speed impacts your trading experience.
Why Slippage occurs?
Slippage usually occurs during periods of high volatility or low liquidity:
- Market Volatility: Rapid price movements during news releases or major events.
- Low Liquidity: Fewer buyers and sellers in the market can cause price gaps.
- Order Size: Large orders may not be filled at a single price level.
For example, if you want to sell 1 lot of EUR/AUD at 1.7895, but at the time you try to place the order the price is no longer available, your order is executed at the next best available price, which happens to be 1.7891. This means you experienced slippage of 4 pips.
Slippage can be positive or negative, depending on whether it moves in your favor or against you. In the example above, the slippage occurred at a lower price than the one you initially intended to sell at, which means it was positive slippage.
What Is Execution Speed?
Execution speed refers to how fast your broker processes your trade order and sends it to the market. Faster execution reduces the risk of slippage and ensures you get closer to your intended price. In fast-moving markets, even a delay of milliseconds can lead to slippage. Scalpers and day traders rely heavily on quick execution for profitability.
- During high-liquidity sessions (e.g., London and New York overlap).
- Outside major news releases (e.g. Non-Farm Payrolls (NFP), Unemployment Rate etc.)