Forex Trading Slippage – What You Should Know
The following is a general informative article about what really happens behind your Forex broker’s curtains. Something known as Forex Trading Slippage. Did you ever wonder what really happens behind Forex trading platform? Just by thinking about this means that you are curious about your broker and means that you are suspecting that something just isn’t right. Having said that, please rethink who you trust your money with.
With the above mentioned, this article will only scratch the surface about what is happening within the broker’s curtains.
Forex Slippage is something most Forex traders don’t quite understand.
Well to make it easier for you to understand, Forex trading slippage is a secret that most brokers do not want you to understand or to even realize.
Imagine you have deposited 100,000 USD into your Forex trading account, and that your trading habits on this account is to open position volume sizes of 100,000 USD (1 lot). Which means that you are trading at 10$/pip.
Now considering the above, let’s say that the spreads are variable with this ECN or Non-ECN broker, depending on who you work with.
To add to our example, you are trading on the EUR/USD @1 lot, whereas the spread is variable of 1.5 pips (1.5 x 10$ = $15 spread commission).
Now imagine if i told you that the real commission is not $15, but it’s actually between $30-$45 on this trade? Slippage is that extra cost. Would you think I’m saying nonsense?
The truth is no! This is because of the forex trading slippage. Forex Slippage means that on your forex trading, instead of getting into the market by opening the position at X price, you actually enter the position at X+ (1 to 4 pips) extra, thus getting a slippage on the price.
This is exactly what happens with most “ECN brokers”. You click on either buy or sell, and the price you get slips by couple of pips. Which evidently costs you an extra 1-4 pips.
You should know, if you’re a trader who trades @1 lot, every pips costs you $10.
Now lets take for example 5 trades @1 lot per day with a slippage of 1 pips. This equals to a commission of = 5 trades x $10 = $50 per day. A month that is = 22 days x 50$ = $1100 per month.
This $1100 per month is above you’re spread commission!!
Forex Trading Slippage – Conclusion
Even though most traders don’t do it, Forex trading slippage is one the elements you must take into consideration when you choose where to trade. If you don’t, it may cost you more than you even realize, as shown in the mentioned above example. It doesn’t really matter which type of broker you have, you must explore its slippage performance. I clearly recommend an ECN Forex broker. However being an ECN doesn’t promise anything and you must verify that it offers competitive trading conditions and as low as possible slippage levels. This is always some of the main factors i check with a broker.