7 ways to combat slippage orders
Forex trader Ivan sits at the computer. Opens Metatrader and sees an uptrend in EURUSD. Without thinking twice, he presses the treasured Buy button at the price of 1.1515. The deal opens, but what does Ivan see? The deal was opened not at the price of 1.1515, but at 1.1518!
What happened? The broker's evil machinations? The impact of overseas sanctions? Fed Intervention? No, nothing like that. It’s just that your order has undergone such a phenomenon as slip (slippage). What it is, why slippage occurs and how to deal with it, you will learn below.
What is slippage?
Slippage is the difference between the price at which you were going to close the deal and the price at which it was actually executed.
Let's say you see the possibility of buying at a price of 1.0607:
Press the buy button, but it turns out that the transaction was executed at a price of 1.0610.
The difference between the price at which we bought and the price at which the transaction occurred is 3 points. These 3 points that we lost while opening a position are called slippage.
Slippage can be either positive when the order is executed at a better price for you, or negative, as in the example above.
It is noteworthy that stop-loss and take-profit can also slip and execute at a price slightly different from the one you set when placing the order.
Pending orders can also slide, but at the same time they have slight differences, but we will talk about this a little later.
Now let's try to deal with concepts that many often confuse and do not fully understand.
Slip - this is the execution of an order at a price different from the price specified by you when placing the order.
Requote - this is when there is no price at which you sent your request for the execution of the order.
Imagine that a message appeared about new prices. You press the buy button, and you get a message that there is no such price and the offer to buy at a new price. This is called requote.
By setting slippage parameters during trading, requotes can be avoided.
Is slipping good or bad?
I think that in the course of reading the article, many had a logical question: “Is slipping bad? Does this mean that my broker is somehow tricky and does something bad with my account? ”
The answer is simple.
The presence of slippage is good, because there is a sign of market reality. This confirms that you are really trading on the interbank market.
As a rule, slippage is present on ECN type accounts. That is, on accounts that are withdrawn to the interbank or withdrawn at least partially, which depends on the size of your position.
If you see slippage, then this is neither bad nor good. This is normal.
Slippage can be on market type accounts: ECN, NDD, STP, but it can also be present on Standart type accounts.
The presence of slippage is a normal situation with which you can and should work.
Why does slippage occur?
Slippage is the result of market execution.
Market execution is a line of orders, buy and sell orders.
What happens when we place a buy order?
Let's imagine the so-called "glass".
You are about to take a buy position. The following offer is on the market, 100 lots at a price of 1.3145. And at a price of 1.3146 there are 50 lots. And so on:
Let's say we want to buy at a price of 1.3146.
Click on the buy button. But since we are not alone, there can be many applications for this position, and these 50 lots were quickly snapped up by other buyers.
Thus, due to the fact that the market is in great demand for this price, there is no lot left for us. But the broker tells us that it does not matter. We have a new price of 1.3147. And we can either agree and purchase the lot at a new price, or, if we have an account with market execution, will agree for us.
Thus, we can take a position at a price less favorable for us 1.3147, but it is worth remembering that if lots at this price also sell out, then we will receive an offer with a different price, 1.3148, 1.3149 and so on.
Such availability of supply and demand means the presence or absence of liquidity.
Therefore, the first cause of slippage can be denoted as Liquidity.
In this case, several options are possible.
Imagine that the size of the order is larger than the upper liquidity layer. It is also possible that there is very little liquidity left, or some very large order was requested from you.
Your order is divided into parts and sent to several broker's liquidity providers. As a result, the trader receives a weighted average price, which may be worse or better than the price that he indicated. In such a situation, the order partially slips.
If the liquidity provider sends a refusal of execution, then there may be a delay, and your order was sent to another liquidity provider. Some time has passed, and the market offer for the price you want has gone. As a result, the presence of a different price and the corresponding refusal of the broker to execute your order.
Very often, during a news release, a liquidity problem occurs and orders slip strongly.
Why is this happening? Many banks and institutions that act as liquidity providers are leaving the market to protect themselves from sharp price spikes and possible losses. At the same time, spreads are expanding, as brokers want to protect themselves from possible losses.
That is why, during the release of major news, traders have problems. Spreads are large, slippages are strong and it becomes much more difficult to earn.
Lack of liquidity also occurs when trading exotic currency pairs. For example, with Turkish lira, African rand, or Russian rubles.
Those who traded during the strong jumps of the Russian currency should remember a certain period when so many brokers simply turned off the possibility of trading in rubles. The whole reason is the lack of liquidity.
There is another reason for slippage - this Technical problems.
These include network delays between your trading terminal and server, aggregator and liquidity providers, as well as a commonplace reason - weak Internet.
In this regard, I would like to tell you about the fact that especially large Wall Street businessmen rent buildings near the center so that orders reach trading servers as quickly as possible, saving the smallest fraction of a second.
For us, it will be enough to have a fast and stable Internet. After all, we live very far from western servers. And the trading servers of our brokers are often located outside of Russia.
How to deal with slippage?
At the very beginning, I want to say an important idea. There is no need to fight slippage, but you need to work with it.
First of all, let's start with Technical part. You need good internet. Remember that a wired connection is much better and more stable than the same Wi-Fi.
When we start working in the terminal, we try to disable programs that use the network.
If you are some kind of mega-scalper, then this is most relevant for you. Close various programs such as torrents, vibers, skype, ICQ and the like. We need a good connection, or finding a VPS server closer to your broker if you trade with the help of advisers.
If you are not some kind of mega scalper, then it’s enough to have a good and stable Internet connection.
The second point of work with slippage is worth noting Settings in MT4.
When you click on the window of a new order, it has a parameter - "Use the maximum deviation from the requested price":
You can select the maximum slippage value in points that will be allowed. In theory, if the price will differ by a larger amount than that set in this parameter, then the order will not be executed.
Unfortunately, in practice this does not always work. This is due to the technical features of broker servers and the Metatrader 4 trading terminal.
You must understand that this setting does not always work the way we want it.
Similarly, the slippage parameter is also configured in expert advisors.
The third point is Using limit pending orders.
As we recall, there are several types of pending orders.
These are Buy stop / Sell stop and Buy limit / Sell limit. Recall that a pending order with the end of Stop is placed based on the breakdown and activation of the pending order, while an order with the end of limit is placed in order to enter the market at a rollback at the best price. But there is a fundamental difference in the execution of Stop and limit orders.
With an order placed, say Sell stop, it is activated only when the price reaches it.
But if we put Buy or Sell limit at a price, then the order is sent to the market in advance and it is more likely to be executed at exactly the price that we specified.
Thus, limit orders reserve a certain part of liquidity for us, but on condition that you have an account type with an output to an interbank bank.
Of course, even such orders can slip, but the probability of this is much less than that of market and stop orders.
The fourth point is Trading on high time frames.
If you trade on the M5 timeframe, then slipping at 1 pips is noticeable for you, but if you are trading on the daily charts, slipping at 5 pips does not make any great weather for you.
Therefore, you can deal with the problem, or you can simply eliminate it and make it insignificant by moving to a higher timeframe.
The fifth point is Do not trade on the news.
I have repeatedly mentioned that the liquidity problem arises, as a rule, at the output of various news. This is economic data, speeches of politicians and so on.
Therefore, about half an hour before the news and half an hour after the news, we try not to trade. So we eliminate the problem with liquidity.
Sixth point -Change account / broker type.
Of course, you can replace your broker or change the type of your account, but to be honest, this is the pursuit of some impossible dream. And besides, this is usually the shifting of responsibility for losing one's beloved to a broker, execution, market makers, villain's fate and so on.
Therefore, this point should be approached with a sound mind and a certain degree of skepticism. Because if you start changing brokers, types of accounts, then this can drag on for a long time and, as a rule, will not lead to anything good.
Seventh point - Volatility filter.
Imagine that you like to trade an active market. You know that the average slippage during the news release is 10 points. And the average profit on such transactions is 30 points. It turns out that slipping takes you about 30% of the profit.
Suppose you are trading part of the news, but you know that some news give an average movement of 30 points, while others give an average movement of 60 points.
If you take transactions with an average movement of 60 points, then slippage will eat up not 30%, but only 17%.
Thus, using news only with high volatility, you can reduce the damage to your profits.
Similarly, if you know that the average slippage with an active market, but without news is 2 points. In this case, you can trade only on those days when volatility is increased to increase profit and reduce losses resulting from slippage.
In conclusion, I would like to remind you that today we found out that slippage is a sign of real market trading with the corresponding conclusion of orders to the interbank.
This should not be fought, but it is probably worth starting to work. If you trade on high time frames, then slippage does not play a big role for you.
If you trade on small time frames, then you can take a number of measures in order to reduce slippage:
- Good internet, wired connection, disable all third-party programs consuming traffic.
- Setup in MT4
- Using limit orders
- Trading on Higher Timeframes
- Do not trade on the news
- Change account / broker type
- Volatility filter
That’s all for me. Thank you and see you soon!