Slippage is a simple idea with practical consequences for anyone placing orders in the FX market. At its core, slippage is the difference between the price you expect when you submit an order and the price at which that order is actually executed. It can work for you or against you, and it shows up most clearly when markets move fast or liquidity is thin. This article explains slippage step by step, gives concrete examples, and outlines sensible ways to reduce its unwanted effects.
What slippage looks like in practice
Imagine you see EUR/USD trading at 1.1200 and you place a market order to buy. You expect to open at 1.1200, but when the order is filled the best available price is 1.1205. That 5‑pip difference is negative slippage: you paid more than you expected. The reverse can also happen. If conditions change in your favor and the fill happens at 1.1195, you get positive slippage and a better price than you planned.
Slippage can appear on entries, exits and stop losses. For example, a stop‑loss that you set at 1.1150 can execute at 1.1120 if the market gaps or runs through liquidity before your order is matched. Automated systems — Expert Advisors (EAs) — are especially exposed because they assume exact entry and exit levels; if slippage is frequent or large, live results will differ from backtests that ignore realistic fills.
Why slippage happens
Slippage is a natural outcome of how markets match buyers and sellers. The main drivers are market volatility, available liquidity, and the time between order submission and execution. In plain terms, if prices move faster than orders can be filled, the executed price will differ from the requested one.
To make that clearer, common causes include:
- High volatility around news events or central bank announcements that push price through available orders very quickly.
- Low liquidity in a currency pair or at a particular price level so the size you request cannot be matched at the quoted rate.
- Execution delays caused by network latency, slow routing from your platform to the broker or the broker’s own internal processing.
These factors often interact. For example, a relatively illiquid cross pair can become extremely illiquid during a scheduled data release, producing outsized slippage.
Types of slippage and how it affects trades
Slippage takes three forms: positive, negative, and zero (no slippage). Positive slippage improves your trade price; negative slippage makes it worse. The impact on your bottom line depends on position size and leverage. A few pips of negative slippage on a small retail position is minor, but the same move on a large or highly leveraged position can materially change profit or loss.
There is also a practical distinction between slippage on market orders and slippage on stop orders. Market orders accept whatever price is available immediately, so they are more exposed. Stop orders typically become market orders when triggered, so stops can suffer slippage during fast moves or gaps. Stop‑limit orders can avoid slippage by converting to a limit, but they carry the risk of not being filled at all if the market skips the limit price.
How traders reduce slippage (realistic, practical approaches)
Reducing slippage is about matching order type, timing and execution quality to your strategy. No single trick eliminates it, but a combination of practices can reduce frequency and size.
First, choose the right order type for the situation. Limit orders guarantee a maximum entry or exit price but may not fill; market orders guarantee execution but not price. Stop‑limit orders can prevent a bad fill but expose you to the risk of remaining in a losing position if the price gaps beyond your limit.
Second, be mindful of timing. Many traders avoid placing new trades or wide stop orders right before major economic announcements. Trading during the most liquid sessions — for major pairs, that typically means the London and New York overlap — lowers the chance of large slippage because more counterparties are active.
Third, manage order size relative to market depth. A very large order can “walk the book,” taking liquidity across several price levels and producing slippage even in liquid pairs. Splitting size into smaller orders or using execution algorithms can help for large volumes.
Fourth, check execution quality and platform settings. Some platforms let you set a slippage tolerance or maximum acceptable slippage in pips. Using a low‑latency connection, a VPS located near your broker’s servers, and a broker with clear execution policies can reduce delays, though they do not remove market risk.
Finally, consider protective tools. Guaranteed stop orders (where available) close your position at the exact price you select regardless of slippage, but they normally cost a premium. Evaluate whether that premium makes sense for the size and style of your trading.
Concrete examples to illustrate the choices
A day trader places a market buy on GBP/USD at 1.3000 for 1 standard lot. During a brief spike the order fills at 1.3015. That 15‑pip negative slippage increases the break‑even point and may turn an otherwise small loss into a bigger one. The same trader could have used a limit buy at 1.3000; the order would only fill at that price or better, but if the pair jumped above 1.3000 without trading at it, the order would remain unfilled and the trader might miss the move.
An EA designed with 10‑pip stops backtested on historical data may show acceptable returns, but in live trading stops might be hit with an average of 6 pips extra in slippage during volatile sessions. That erodes the intended risk–reward and can make a strategy unprofitable unless adjustments are made, such as widening stops or introducing execution slippage into backtests.
A longer‑term investor holding positions overnight faces gap risk. If a currency opens sharply after news, the stop loss could execute at a much worse price than the level set, producing large negative slippage that cannot be avoided without guaranteed stops.
Risks and caveats
Slippage is an inherent part of trading and cannot be eliminated entirely. Measures that limit slippage often have trade‑offs: limit orders avoid bad fills but can leave you unfilled; guaranteed stops remove slippage risk but add cost; trading only during calm periods reduces opportunity. Execution quality varies between brokers and venues, and past fill behaviour is not a promise of future execution. Network latency, order routing, and the broker’s trade model (for example, whether they internalize flow or use external liquidity providers) all influence fills but are often outside a retail trader’s direct control. Importantly, strategies that ignore realistic slippage in backtests risk producing misleading performance expectations. Trading carries risk; this article is educational and not personalised advice.
Practical checklist for managing slippage (short list)
When preparing a trade, consider these points to reduce slippage risk:
- Match order type (limit vs market) to your need for speed versus price certainty.
- Avoid trading or widen expected ranges around scheduled high‑impact news.
- Keep position size in line with market depth; split large orders if needed.
- Review and test your broker’s execution and slippage behaviour on a demo account.
- If you use EAs, include realistic slippage and execution delays in backtests.
Key takeaways
- Slippage is the difference between an expected price and the actual execution price; it can be positive or negative.
- It is caused mainly by volatility, low liquidity, and execution delays, and it affects entries, exits and stops.
- You can reduce slippage by choosing appropriate order types, timing trades around liquidity, sizing orders sensibly, and testing execution with your broker.
- Trading carries risk; tools that limit slippage have trade‑offs, and nothing removes market risk entirely.
References
- https://pandats.com/news/manage-slippage-in-forex-trading/
- https://forex92.com/blog/how-does-slippage-impact-ea-results/
- https://www.ig.com/en-ch/learn-to-trade/ig-academy/the-basics-of-forex-trading/what-is-slippage
- https://www.forex.com/en/news-and-analysis/price-slippage/
- https://www.investopedia.com/terms/s/slippage.asp
- https://www.ig.com/en/trading-strategies/what-is-slippage-and-how-do-you-avoid-it-in-trading–190319
- https://tradethatswing.com/slippage-in-trading-what-it-is-how-to-navigate-it/?srsltid=AfmBOopMNsAU5ocNbrxq8puqzKVK0WMe12w9VbIGDUxB4eOtHzUTDphB
- https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/slippage/