Understanding Slippage and How to Manage It on JustMarkets
Variance is another foreign concept that affects trade which could in turn affect the trade profitability in a volatile market. This takes place when the actual price at which the trade is carried out is different from that expected, mainly as a result of price volatility and or inadequate market depth. The knowledge of the phenomenon of slippage and the difficulties tracers face when trying to address it and the crucial steps a trader can take to reduce the losses from slippage in JustMarkets and also improve his knowledge to make better trades.
To learn more about trading concepts like slippage visit the Forex Education Center on JustMarkets, and explore more tools that traders on JustMarkets can use to manage change effectively.
What is Slippage?
A major risk in trading is slippage whereby the price that a trader expects to open an order and the price at which the order is opened are two different things. This variance can also be positive and means that the trader got a better price than he expected or negative which means that the trader got a worse price. For instance, suppose a trader who placed a buy order at 1.1000, the up-to-the-trade rate comes out to be 1.1003, while the rest of 3 pips is slippage. In fast-moving markets such as those that move in response to big news items, slippage is far more likely because prices are changing constantly and can produce a wide range of results.
Causes of Slippage in Forex Trading
Several factors contribute to slippage, with the primary ones being:
Market Volatility: Especially before important economic data releases, prices could fluctuate very quickly, and trades can take place at a less favorable price than intended.
Liquidity Conditions: Counterparty risk is tight in a low-liquid market as it may prove hard to identify the counterparty within the preferred price range, in which case the platform looks for the next best available price or in other words slips.
Execution Speed: Slippage can also be an issue of speed at which trades are executed. Fluctuations in the stock prices can occur as soon as there is a lag on the part of the firm in making the trades.
The final way in which JustMarkets is able to accommodate slippage is informing and maintaining the price Risk Management team at the company.
Slippage is mainly a function of the speed of order execution and JustMarkets pride themselves on giving their clients a fast and efficient service. In light of multiple liquidity providers, JustMarkets aspires to guarantee that traders always get the best execution price under market circumstances. In the processing of the orders, the platform lowers the time taken by implementing smart technology which increases efficiency in matching the orders. However, slippage cannot be avoided in its entirety as it remains a characteristic of the live market trading let alone during a high impact period.
Strategies to Manage and Minimize Slippage
While slippage cannot be completely avoided, traders can take steps to manage and reduce its impact:
Use Limit Orders
This gap can be filled by using limit orders instead of market orders as one of the chief means of preventing slippage. Compared to a market order a limit order is completed at a pre-designated price, thus minimizing the possibilities of slippage. Nevertheless, it’s important to bear in mind that limit orders are not always sure to be activated if the market price does not get to the set value.
Trade During High Liquidity Periods
It has been found that Cross operation margin slip is lower in high liquid conditions like overlapping of development sessions (for instance, London New York). It is important to trade during these periods as the slippage risks are normally minimized due to the low volatility that characterizes the market.
Avoid Trading Around Major News Events
Two, slippage activity is normally prominent following high-impact news releases on interest rates or economic growth (GDP). This allows the trader to avoid making trades during these times when the prices of the commodities fluctuate a lot. Monitoring JustMarkets’ economic calendar allows traders to be aware of events that potentially increase the volatility of a particular currency pair.
Consider Stop-Loss and Take-Profit Orders
Utilizing stop-loss and take-profit signifies that risks might be effectively managed all through, especially significantly throughout inclined marketplace situations. Although these orders do not prevent slippage they establish guidelines of the amount of loss that can be incurred and gains that can be captured.
Monitor Market Conditions
By being knowledgeable on market characteristics and position liquidity exists, traders incur slippage risks. Regarding esteeming position sizing and or exiting trades where the market is especially fragile, consider utilizing smaller orders with a strategy of waiting for the market to become less unpredictable before engaging more lively.
Leveraging JustMarkets’ Tools to Improve Execution
In JustMarkets traders can find a number of tools that can assist them in controlling slippage more efficiently. Through the educational features of the platform, traders can enhance their awareness and how various conditions affect their trading space. Furthermore, JustMarkets’ high speed and choice of several liquidity vendors’ intentions are to ensure price matching without significant slippage.
Final Thoughts
Interference is a real measurable phenomenon that cannot be avoided in the process of trading but it can be controlled. Knowing the reasons that lead to slippage, avoiding being exposed to its root causes, and mastering the features of JustMarkets allow traders to reduce the negative influence of slippage on their operations. Things such as limit order, trading in the high liquid sessions and the general condition of the market will be used to conduct a more effective trading in forex.
