Definition
SlippageSlippage is the difference between the price you expected for an order and the price at which it was actually filled. It can be negative or positive.
Example
A sell stop-loss is set at 1.0800, but after a surprise announcement the next available bid is 1.0785, so the order fills 15 pips lower than planned.
In detail
Prices in forex are constantly changing. Between the moment an order is triggered and the moment it is filled, the best available price may move. If it moves against you, that is negative slippage. If it moves in your favor, that is positive slippage, which some brokers pass on and others do not, so check their order execution policy.
Slippage mostly affects market orders and stop orders, because both say "fill me at the next available price." Limit orders are designed to fill only at your price or better, so they do not suffer negative slippage, but they may not fill at all.
When slippage is most likely
- Around major economic releases and central bank announcements
- At the weekly open, when price can gap away from Friday's close
- In thinly traded pairs, such as many exotic currency pairs
- During quiet hours when liquidity is low
- When order size is large relative to the volume available at the best price
Example
Assume (illustratively) a trader is long 2 standard lots of EUR/USD with a stop-loss at 1.0800, planning to risk 30 pips from an entry of 1.0830.
- Planned loss: 30 pips × $10 × 2 lots = $600
The market gaps on news and the stop fills at 1.0785.
- Actual loss: 45 pips × $10 × 2 lots = $900
- Slippage cost: $300, a 50% larger loss than planned
Why it matters
Slippage means a stop-loss limits risk but does not guarantee an exact exit price. Some brokers offer guaranteed stop-loss orders for a fee, which remove this risk on that trade.
Practical ways to reduce slippage include avoiding new market orders in the seconds around high-impact releases, trading during liquid sessions, and keeping position sizes modest enough that an unexpected few extra pips will not cause serious damage. Allowing a buffer for slippage in your risk calculations is a sensible habit.
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Related terms
- ExecutionExecution is the process of filling a trade order: the price, speed and method by which your buy or sell instruction becomes an open or closed position.
- LiquidityLiquidity is how easily a currency pair can be traded in size without moving its price much. High liquidity usually means tighter spreads and smoother fills.
- VolatilityVolatility measures how much and how quickly a currency pair's price moves. Higher volatility means bigger swings, which raises both opportunity and risk.
- Stop-LossA stop-loss is an order that closes a trade automatically at a preset price to cap the loss if the market moves against you.
- SpreadThe spread is the difference between the ask (buy) price and the bid (sell) price of a currency pair. It is a built-in cost paid on every trade.