Many traders in the financial markets, especially those trading the Forex market, do not pay much attention to a very important aspect in trading that can cause great losses or reduce large profits. Referred to as Slippage, this is the difference between the ask price and the execution price.
There will always be a variable difference between the prices with any forex broker. This is sometimes not noticeable especially during peak market hours where price fluctuations occur very fast. But if you trade with a credible forex broker, traders can control their slippage.
I will now emphasize the direct influence that forex slippage has on your trading accounts: lets assume that you want to open a long position of 1 standard lot (100K) on the EUR/USD currency pair. The price that you ask is 1.4520. When you execute the trade and the order is palced, and by the time your order is executed, the price is already at 1.4530, or 10 pips above your request. It might not sound like the end of the world, but it means that you just lost 100$.
And if you multiply 100$ with 3 trades a day (though the average is much higher) the result would be a loss of 300$ in just one day. That means that you lose about 5000-6000$ every month- and just because of the slippage! That is a significant amount for all types of traders and something that should be considered when trading huge amounts or when trading forex frequently.
Slippage in forex cannot be avoided, due to technological reasons. There will always be some slippage between the requested price and the execution price. Nevertheless, trading with a forex broker that allows trading with minimum slippage that will not kill your account is advisable. So what should traders look for? Brokers with advanced technology and systems; ECN brokers that broadcasts all of its clients’ orders straight to the market and provides market’s real quotes and prices.
You can also avoid large slippage in your current broker by not trading while high impact news is released or during “dead” hours. Open account with LMAX Exchange to trade with one of the best forex brokers operating as an MTF with no dealing desk and one of the best spreads in the fx industry.