There have always been some problems with people's views on the foreign exchange slip point, some people pay too much attention to it, some people don't pay attention to it, and some people don't even know it. It is important for forex traders to understand the correct concept of forex slip point.
What is a slip point?
Cause of slippage
Characteristics of sliding points
Several cases of positive slip point:
What should I do about slippage
What is a slip point?
Slip point refers to the phenomenon that there is a big difference between the specified trading price issued by the customer and the actual transaction price when trading. Every trader will encounter slip point problem whether it is trading stocks, foreign exchange or futures.
We can assume that, for example, the quoted price of EUR to USD seen by the customer on the platform is 1.2000, and the trading volume accepted by the market at this price is 5 million USD. If the customer orders 6 million USD, what should we do? Of these, $5 million will be sold at 1.3000, and the remaining $1 million will be sold at the following price, which may be 1.2001 or higher.
Cause of slippage
1. Market quotation fault. In fact, it is not difficult to find that the above example is the slip point caused by the fault of the market quotation. Under normal circumstances, the market's quotation is continuous and liquidity is abundant. However, when the market fluctuates sharply or there is a large amount of direct entry and exit, there will be a price fault.
2. Network delay. In general, banks provide quotes to traders, traders provide quotes to clients, and the client's trading orders will reach the traders' servers and then be forwarded to the banking system and traded. In the transmission process, there is often a small delay. Although it is usually not detected, once there is a sharp fluctuation in the market, the server can not handle the delay, resulting in a slip point.
Characteristics of sliding points
1. Many liquidity providers become more cautious in times of volatility, such as non-farm markets. They may stop quoting or increase spreads, which is why many trading platforms restrict trading before and after the non-farm data.
2. In the forex market, the slip points encountered by traders on different trading platforms will also be different, mainly due to the different quotes of different liquidity providers. Remind everyone to pay special attention to this risk when the exchange rate fluctuates sharply such as the night of the non-farm.
3. Slippage is more likely to occur in light trading markets, because light trading is more likely to amplify market volatility, which in turn causes slippage to expand. Mainstream foreign exchange currency liquidity is more adequate, which helps effectively reduce the occurrence of slippage. If you trade forex during trading hours in London and New York, most currency pairs are very liquid and there are fewer slippage points.
4, the normal market slip point has a positive slip point and a reverse slip point, the probability of both is equal. Usually traders set a stop loss to reduce their risk. In this case, once the price hits the stop loss, the broker buys or sells at the current market price, which may be higher or lower than the client's stop loss price. In this case the customer may experience a positive slip point or a negative slip point.
Several cases of positive slip point:
1, stop loss orders: All stop loss orders are executed in accordance with the "market execution", at VWAP (weighted average price), if the final price is higher than the stop loss price you set, it is called the positive slip point.
2, Limit order: The limit order is executed at the price you requested or better, in which case you will receive a positive slip point. Stop-profit orders are also included, and when the market reaches the "stop-profit price", the order is executed with a limit order.
What should I do about slippage
In forex trading, we must know how to avoid the problems caused by the slip point: in fact, the slip point problem can not really avoid it, because it is impossible to predict the range of the slip point, in the real market, we cannot predict the next price, so we cannot give the range of the slip point.
So traders should always check the financial calendar to make sure they avoid trading before and after big risk events. The second is to try not to heavy trading, it is recommended to keep enough margin to withstand unpredictable short jumps. Only with the correct understanding of the slip point can you have a more perfect operation in the forex trading process.
