In recent years, the most popular financial transactions must be foreign exchange transactions, but many people still know little about foreign exchange transactions. In particular, there are some problems with everyone's perception of foreign exchange slippage. They either pay too much attention to it, or don't pay attention to it at all, or even don't understand it at all. A correct understanding of slippage is essential for our foreign exchange transactions. Will the editor tell you the slippage of foreign exchange transactions today?
Slippage refers to the significant difference between the specified transaction price and the actual transaction price issued by the customer. Whether trading stocks, foreign exchange, or futures, every trader will encounter slides.
In other words, the quotation of Euro to U.S. dollar seen by customers on the platform is 1.2000, and the market can accept a transaction volume of 5 million U.S. dollars at that price. What should we do if a customer orders 6 million U.S. dollars? US$5 million will be traded at 13,000, and the remaining US$1 million will be sold at the following price, which may be 1.2001 or higher.
So why is there a slippage?
The first is the error of market quotes. The above example is slippage caused by market quote errors. Under normal circumstances, there is ample liquidity, and market quotations are continuous. Still, there will be price errors when the market fluctuates sharply or a large amount of direct entry and exit.
The second is network latency. Generally speaking, foreign exchange transactions refer to banks providing quotations to dealers and dealers providing quotes to customers. When a customer conducts marketing, the transaction instruction arrives at the dealer's server. It then is forwarded to the banking system, and then the transaction is performed in the bank. There is usually a slight delay during this transmission, which may not be seen in regular times. However, if the server cannot cope with the rapidly changing market, there will be delays and slippage.
What are the characteristics of slippage?
When the non-agricultural and other markets are particularly volatile, usually many dealers will become very cautious. At this time, many traders will take the form of no quotation or increase the difference between quotation points, which is why many trading platforms will restrict our transactions before and after the release of non-agricultural data.
In the foreign exchange market, the slippage that traders encounter on different platforms is also additional, mainly due to the other quotes of different traders. I want to remind you that when the exchange rate fluctuates sharply on a non-agricultural night, please be aware of this risk.
When the transaction is light, the market is more prone to slippage, and it is more likely to expand market volatility and cause the slippage to expand. The liquidity of mainstream foreign exchange currency pairs is relatively sufficient, which can effectively reduce the occurrence of slippage. If foreign exchange transactions are conducted during the opening hours of London and New York, most currency pairs have sufficient liquidity and less slippage.
Average market slippage has vivacious and reverses slippage, and the probability is close to 50%, respectively.
Usually, traders set stop-loss points to reduce risk. In this case, once the price is touched, the broker will buy and sell at the current market price, which may be higher or lower than the customer's stop-loss price. In this case, customers may receive positive and negative slippage.
Several conditions before slippage:
Stop-loss orders: All stop-loss orders are executed according to the "market execution" in VWAP (weighted average price). If the final price is higher than the stop loss price you set, it is called forward slippage.
Limit orders: Limit orders are executed at the price you requested or a better price. In this case, you will get a positive slippage. It also includes stopping earning documents. When the market reaches the "Take Profit Price", the limit order will be used to execute the order.
How to avoid slippage?
First, we need to know that we cannot avoid slippage because we cannot predict the scope of slippage. We cannot expect the next price in the actual market, so we cannot give the range of slippage. Traders should always check the financial calendar.
Make sure to avoid trading before and after high-risk events. Finally, try not to trade in large quantities. It is recommended to reserve enough margin to resist unpredictable short jumps.