Forex trading can be a lucrative way to make money, but it can also be risky if you’re not careful. One of the biggest risks in forex trading is slippage, which occurs when the price at which you enter a trade is different from the price at which the trade is executed.
What is Slippage?
Slippage is a common occurrence in the forex market, especially during periods of high volatility. It can happen when there is a delay between the time you place a trade and the time it is executed, or when there is a sudden shift in market conditions that causes the price at which you entered the trade to be different from the price at which it is actually executed.
Why Does Slippage Occur?
Slippage can occur for a variety of reasons, including:
- Market volatility
- High trading volume
- Slow execution speeds
- Requotes from your broker
How to Avoid Slippage
While slippage cannot be completely avoided, there are steps you can take to minimize the risk of experiencing it in your forex trades:
- Choose a reputable broker with fast execution speeds.
- Avoid trading during periods of high volatility.
- Use limit orders instead of market orders whenever possible.
- Monitor your trades closely to identify any potential slippage.
FAQs
What is a limit order?
A limit order is an order to buy or sell a security at a specific price or better. It sets the maximum price you are willing to pay for a buy order or the minimum price you are willing to accept for a sell order.
What is a market order?
A market order is an order to buy or sell a security at the current market price. It will be executed at the best available price at the time the order is placed.
Can slippage be completely avoided?
While it is not possible to completely eliminate slippage, you can take steps to minimize the risk of experiencing it in your forex trades.
References
For more information on forex trading and how to avoid slippage, you can refer to the following resources:
- Investopedia – Slippage
- BabyPips – How to Avoid Slippage in Forex Trading
- Forex Factory – Dealing with Slippage in Forex Trading
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