What Is Slippage?

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. This phenomenon is common in trading, especially in fast-moving or volatile markets. Slippage can occur due to delays in order execution, sudden market movements, or limited liquidity at the desired price level.

 

While slippage is an inherent risk in trading, understanding its causes and how it applies to different order types can help traders make informed decisions. In MetaTrader 5 (MT5), orders such as limit, stop, and market orders are executed as market orders when triggered, making them subject to slippage.

 

 

 

 

 

How Slippage Applies to Different Order Types

1. Limit Orders

Using a limit order, traders can input the price at which they wish for the order to be executed. However, upon trigger and execution, the MT5 system will execute the order as a market order and therefore, depending on the liquidity and the price fluctuation, slippage may occur.

 

Example

Trader A set a limit for a buy order for BTCUSDT to $90,000. When the price hits $90,000, the order triggers but due to high demand, the best available price is $90,050. Your order is executed at $90,050, resulting in a $50 slippage.

 

 

 

 

2. Stop Orders

Once a specified price is reached, a stop order becomes a market order, making it susceptible to slippage, particularly in fast-moving markets.

 

Example

You set a stop-sell order for XAUUSD (gold) at $2,600. A sharp drop in price occurs, and the order is executed at $2,595 due to limited liquidity at $2,600. The slippage in this case is $5.

 

 

 

 

3. Market Orders

Market orders are executed immediately at the best available price. In volatile markets, the price can change rapidly before the order is filled, leading to slippage.

 

Example

You place a market buy order for NAS100 (Nasdaq 100) when the quoted price is 21,200. By the time the order executes, the price has moved to 21,205. The slippage is $5.

 

 

 

 

 

Tips to Mitigate Slippage

• Trade during periods of high liquidity to reduce the likelihood of slippage.

• Avoid placing market orders during major economic events or news releases.