Minimising the impact of Slippage

Greg Michalowski talks about Slippage in FX trading and how to minimize its impact.

First Published: e-Forex Magazine 22 / Traders Workshop / January, 2006

Slippage defined:Slippage can be defined as the difference in rates between where a market entity desires to execute a trade/order and where the trade/order is actually filled. It occurs in Stop and market orders. For example, it is 8:29 a.m. EST and the economic data release change in Non-Farm Payrolls (NFP) is to be released in one minute. The market is trading at 1.1800 – 1.1802 and stable. You have your Sell Stop at 1.1795. At 8:30 a.m. NFP is released and is much stronger than the market’s expectations (a situation where the EUR would weaken and the USD get stronger, leading to a lower EUR/USD price). In the space of the first few seconds after the initial headline, the bid on the EUR/USD drops from 1.1800 to 1.1790, to 1.1785, 1.1784, 1.1782, 1.1775 and 1.1765, before rebounding and continuing on a volatile up and down trading pattern with a downward, market bias. What happens with your Sell Stop order at 1.1795?12-13-05 FOMC Announcement One-minute ChartIn this situation, it would...continued