What Is Slippage in Forex Trading & How to Avoid It?

June 24, 2025 | 7 min read
What Is Slippage in Forex Trading
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In forex trading, slippage is an important concept where the executed trade price differs from the expected price. This market problem can significantly impact trading outcomes, influenced by market volatility, brokerage practices, and order types. Understanding slippage helps traders navigate the complex forex exchange landscape and manage potential financial risks effectively. 

This article will explore slippage’s fundamental aspects, including its causes, variations, and mitigation strategies.


What Is Slippage in Forex Trading?

Slippage is a common occurrence in forex trading where your trade is executed at a slightly different price than you originally planned. This happens when market conditions change promptly, causing a price shift between the moment you place your order and its actual execution. Slippage can affect both buying and selling trades.

In the forex market, prices can fluctuate within milliseconds. For instance, you intend to buy EUR/USD at 1.1200, but your trade is ultimately completed at 1.1203. That 3-pip difference represents the slippage in your transaction.


How Does Slippage Occur in Forex Trading?

Slippage in forex trading is when the price that appears on your screen does not match the price that is used to execute your order. This is typical in the forex market due to the decentralized structure and many spectators that cause prices to fluctuate every second in real time.

Ensuring trading is executed quickly is an important part of foreign exchange trading. An online marketplace connecting buyers and sellers from across the world while facilitating foreign currency transactions. Due to the dynamic nature of the market, slippage may occur in the middle of a communication delay, whether it be in the trading platform or the network.

Positive Slippage

Positive slippage is the process of executing a transaction at a higher price than anticipated. For example, you would get slippage for 2 pips if the market shifted to 1.1198 before your buy order for EUR/USD on 1.1200 was executed. Positive slippage is typical in highly liquid markets and may boost profits, mainly when trading during calm or low volatility periods.

Negative Slippage

Negative slippage occurs when the price before the transaction is completed is lower than the price you initially intended. For example, if you place a sell order for GBP/USD at 1.3200, and it gets executed at 1.3195, you will incur a loss of 5 pips. Volatile markets or news releases may cause negative slippage, lowering your profits or increasing losses.


Causes of Slippage in Forex

Slippage in forex trading is the result of many different kinds of factors that are associated with the order execution process and the dynamics of the market. Here is a more detailed examination of the major causes:

1. Market Volatility

High-impact news events, such as economic reports or geopolitical developments, can cause sudden and significant price movements.

2. Low Market Liquidity

During periods of reduced liquidity, such as off-peak trading hours or in less-traded currency pairs, there may not be enough buyers or sellers at your desired price. This forces your trade to be executed at the next available price.

3. Order Type

Market orders are executed at the current market price, which can lead to slippage during volatile market conditions. Limit orders help control potential price variations by setting a maximum buying or minimum selling price, but they may not execute if the market doesn’t reach the specified price level.

4. Wide Spread

The possibility of slippage increases as the spread widens, especially during periods of high volatility. The market may fill your transaction at a less favorable price as it reacts to the wider spread.

5. Execution Delays

Delays caused by technology, network lag, or broker inefficiencies can contribute to slippage. In forex, even milliseconds matter, as prices update constantly in a decentralized market.

6. Slippage Settings

Some trading platforms allow users to define acceptable slippage tolerances. If the market moves beyond your set tolerance, the order might still be executed, leading to unintended slippage.


Why Is Slippage Important in Forex Trading?

The concept of slippage is crucial in forex trading as it can have a direct impact on the profitability and risk management of your transactions. Particularly when trading in volatile markets or with larger position sizes, slippage can significantly impact the outcome of your strategy, regardless of whether it is positive or negative.

Understanding slippage is crucial for traders to develop smart trading strategies. Traders can choose brokers that execute trades quickly and avoid execution beyond the initial price with the use of limit orders. Recognizing slippage’s impact highlights the significance of risk management, as consistent negative slippage can gradually reduce profits, particularly for traders who depend on small, frequent gains like scalpers and day traders.

Traders at all levels can visit Forex Academy, where we provide in-depth explanations, useful strategies, and real-world examples to help you comprehend these subtle factors and other crucial trading concepts.


How to Avoid Slippage in Forex

While slippage is a natural part of forex trading, there are ways to minimize its impact on your trades. By using the right tools, strategies, and choosing a reliable broker, you can reduce the chances of unexpected execution prices.

1. Trade During High Liquidity Hours

Forex markets are most liquid during major trading sessions, such as the overlap of London and New York. Trading during these times ensures more participants in the market, reducing the chances of slippage.

2. Use Limit Orders Instead of Market Orders

Limit orders allow you to set a specific price for trade execution, ensuring you avoid negative slippage. While they might not always get filled, they help maintain control over your entry and exit points.

3. Avoid Trading During Volatile Events

Economic announcements, such as Non-Farm Payrolls (NFP) or central bank decisions, often lead to rapid price movements. Avoiding trades during these periods can help you avoid significant slippage.

4. Choose a Reliable Broker

Your choice of broker significantly affects slippage. A broker with fast execution speeds and access to deep liquidity pools can help reduce slippage. 

You can learn more about selecting the right broker from here.

5. Monitor Market Conditions

Traders should be aware of market trends and conditions. Thin trading hours, like during holidays, can increase slippage due to low liquidity. Regularly monitoring the forex calendar helps you avoid trading during unfavorable conditions.

6. Utilize Trading Tools and Settings

Many trading platforms offer slippage tolerance settings, allowing you to control the maximum acceptable deviation from your desired price. Use these tools to prevent significant losses caused by unexpected price gaps.


Conclusion

Since the foreign exchange market is constantly changing and evolving, slippage is a fundamental industry component. Every trader needs to understand the process of slippage and its effects, whether they are beneficial or harmful. Variables like market volatility and liquidity, as well as your trading strategy and order type selection, impact this.

Trading during high liquidity hours, placing limit orders, and collaborating with a trusted broker are appropriate strategies to help you avoid the dangers of negative slippage and take advantage of positive slippage opportunities. 


FAQs

1. Is slippage always bad?

No, slippage isn’t always bad. It can be positive. Your trade can get executed at a better price than expected, boosting your profits. However, negative slippage, where the execution price is worse than anticipated, can affect your returns.

2. Does broker selection affect slippage?

Yes, your choice of broker significantly impacts slippage. A broker with fast execution speeds and advanced technology can help minimize slippage.

3. Can slippage happen in all order types?

No, slippage regularly occurs with market orders and occasionally occurs in pending orders. However, it cannot happen in instant orders.

4. What tools help manage slippage?

Traders can effectively manage slippage by using limit orders, adjusting slippage tolerance settings, and monitoring real-time market conditions. These can significantly reduce potential negative impacts on trading performance.


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