Forex trading for beginners: Understanding slippage and how to avoid it

Julie Brownlee, Fsp Invest, 26 Nov. 2014

Tags: slippage, forex, forex trading, trading forex, forex trade, forex trading for beginners,



When you begin trading forex, there are a few things that you need to get to grips with.

One of those things, and a very important aspect, is putting a trade on.

When you put a trade on, one thing you might encounter is slippage.

So what is slippage? And what can you do to avoid it?



What is slippage?


Slippage is the difference between the price you want to enter a forex trade at and the actual price you get.

For example, you decide to put a long trade on the USD/ZAR. You want to enter the trade at R9.90 as you think the rand is going to weaken to R11.00.

But when you press buy, the currency price moves to R9.95.

So because of slippage, you’ve entered the trade 5c higher than what you wanted to.


Four ways to avoid slippage


If you want to avoid this happening, there are some things you can do…

Tip #1:
When you trade your chosen currency pair, look for times when the price is less volatile. This will help you get in at the price you want.

Tip #2:
Enter your trades using a limit order. This means you instruct the forex broker to enter you into a trade at a specific level.

Tip #3:
When you’re trading, look to trade currency pairs that are very liquid and are moving in a tight range.

Tip #4:
Avoid trading a major currency pair when big economic news comes out. You can’t be sure of the market’s reaction, so the best thing to do is wait for the market to settle down before trading.

So there you have it, what slippage is and how to avoid it.

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