Automated tradingUpdated 2 min readBy the FXNOD team
What is slippage in trading?
Slippage is the difference between the price you expected for a trade and the price at which it was actually filled. It happens because prices move between the moment you send an order and the moment it executes, or because there is not enough available at your price. It is largest in fast or thin markets and can be positive or negative.
An example
You press buy with the price showing 1.1000. By the time the order reaches the market the best offer is 1.1002, and you are filled there. The slippage is 2 pips against you. On a mini lot that is about 2 in money. The same mechanism moves a stop loss: a stop at 1.0950 in a falling market may fill at 1.0945.
When it is worst
| Situation | Why |
|---|---|
| Major news releases | Prices jump and quotes are withdrawn |
| Market open and weekend gaps | The price reopens away from the close |
| Thin hours and holidays | Few orders to trade against |
| Large orders | They use up the best prices |
| Sudden spikes | The price skips levels entirely |
Which orders slip
| Order | Slippage |
|---|---|
| Market order | Yes: you accept the next available price |
| Stop order | Yes: it becomes a market order when triggered |
| Limit order | No: it fills at your price or better, or not at all |
Reducing it
- Trade liquid markets in their busy hours.
- Stay out around major news.
- Use limit orders for entries where missing the trade is acceptable.
- Keep positions small relative to the market.
- Allow for it in testing: subtract a realistic amount from every simulated trade.
Slippage and bots
A backtest or demo usually fills at the price shown. A live bot does not always, and a strategy with a small edge per trade can be turned into a losing one by a fraction of a point on each fill. This is one of the commonest reasons a tested bot disappoints live on real markets.
Fixed-payout contracts
Options work differently: you buy a contract at a quoted price, and it settles on defined ticks. The equivalent effect is that the entry spot is the first tick after the broker processes the contract, not the price you saw when you pressed Buy. Deriv also notes that slippage can affect the closing price of a multiplier.
Questions people ask
- Is slippage always bad?
- No. It can go in your favour. Over many trades in fast markets it tends to cost more than it gives.
- How do I avoid slippage?
- Limit orders avoid it at the cost of sometimes not filling. Otherwise trade liquid markets and avoid news.
- What is slippage tolerance?
- A setting on some platforms for the most slippage you accept. Beyond it the order is rejected.
Run a bot that keeps its limits
FXNOD's bots run on its servers and will not start without a stop loss, so your limits hold when your device is off. Build one in Bot Forge or start a ready-made one in Auto Hub, on your Deriv demo account first.
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