Have you ever been walking at the mall or a hospital or some other public place and come across one of those yellow cautionary cones that say “careful, wet floor”? Those are placed there so that you, the customer, don’t slip and fall. Now, consider this article, the cautionary sign of Forex trading so slippage doesn’t make your strategy fall.
If you’ve been trading for some time, then you are well aware of what slippage is costing you, but if you are a new trader you may be going “slip-a-what?” So let me first give you a quick overview of what slippage is: slippage is in essence, the difference between the price you intended to execute a trade at and the price you actually got the order filled by your broker. Why is there a price difference, you ask? Well, the main reason why slippage occurs is because of latency. You send your request to your broker via the internet using the trading platform, it reaches their servers and then it is sent though to one of the brokers’ liquidity providers. This process takes time (milliseconds sometimes, but in times of high volatility in which prices change considerably and frequently, slippage can be noticeable at best and in some cases significant). The speed of your internet connection and your broker’s can affect slippage rates. Another reason why slippage may occur is because in some rare instances (this is true for some unregulated brokers), the broker may delay the orders when slippage may work in their favor.
With the introduction of social trading just a little over a decade ago, copy slippage has acquired almost a whole new meaning. Because the process of copy trading is set on a sort of auto-pilot, the delay of communicating your intended trade to your broker and them in turn putting it out to the market doesn’t exist per se in social trading, however, slippage still very much happens. As a first instance, a copier may be affected by negative slippage by the simple fact that his or her trading terms with the broker are less favorable than those of the master they are copying. The master you choose to copy may have been offered thinner spreads by his broker as a valued client and if you do not have matching terms, then you’ll get a worse buy and sell price. Slippage in social copying can also occur in times of high market volatility, such as during news releases. The master may be able to execute a trade at a certain price, but the copying of such trade falls behind by seconds due to the network process of getting and fulfilling the orders or due to simple lag. Those seconds mean a significant change in price.
Copy slippage is inevitable, a nature of the beast. While you can’t do anything to avoid it in its entirety, there are steps you can take to minimize it. So, what are they?
- Choose your social trading platform wisely. A platform provider with inadequate servers means slow transmission of orders and in some instance, frequent downtime of their systems. Choosing a service provider with stable and accelerated servers can help you get your orders executed at a price closer than your intended trading price.
- Find a master with a positive slippage rate. Anything above zero means positive slippage rate, or in practical terms, it means that a copier is getting the same or better terms than those of the master. Keep an eye on masters with a slippage rate ranging between 0 and -5 as good masters to copy.
- Find a master with higher average pips per trade. Even if you experience some kind of slippage, this should give you some kind of cushion.
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