Slippage is a term that is seen as very negative for traders
in the Forex markets, however, there are many traders that do not fully
understand what is slippage and why slippage occurs?
What is Slippage?
When trading with market
execution there are no re-quotes and no orders are rejected, however there is natural latency in the markets, between the clients trading station, broker and the
liquidity providers. This can lead to orders being executed at the next
available price (slippage).
Slippage can also be when the target price is not available
in the market. Like any market in the world, pricing in Forex can also rise or
fall not in sequence but instead prices offered can jump and can lead to order
being filled at the next available price due to rapid market movements (it past
already or didn't exists in the market). Slippage is more likely during abnormal
market conditions when quoted prices are fluctuating rapidly or periods of low
liquidity.
Slippage is often referred to as negative, but in fact
slippage can also be positive for the trader as they experience price
improvements.
Price Improvements (Positive Slippage)
With TFX Markets' best execution policy, Forex traders can
rest assured that orders will always be filled at the banks at the best price
available, based on the natural prices of the Forex markets. TFX Markets policy
of no dealing desk execution and no dealer plugins means that every trader can
benefit from positive slippage.
What are Price Improvements, how do price improvements
work?
When an order fills at a better and more favourable price than the price the trader has requested, it is known as Price Improvement (positive slippage). For example, if a trader has an open buy EUR/USD order with a take profit of 1.08452 and the order fills at a more favourable price of 1.08457, there is a price improvement of 5 points.
When an order fills at a better and more favourable price than the price the trader has requested, it is known as Price Improvement (positive slippage). For example, if a trader has an open buy EUR/USD order with a take profit of 1.08452 and the order fills at a more favourable price of 1.08457, there is a price improvement of 5 points.
When to Expect Price Improvements?
Gaps in pricing occurs during the release of high impact
economic data such as the Nonfarm Payroll report that is released on the first
Friday of each month. Also, during periods of low liquidity, during rollovers,
closing of the markets, opening of markets (the Gap) and during holidays when
limited exchanges are available.
TFX Markets does not interfere with clients Forex orders and price
improvements and negative slippage are treated in the same way as the financial
exchanges. If the market moves in a positive nature for clients, we are happy
that they have benefited from Price improvements.
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