Whether you are an experienced trader or a complete newbie, you have no doubt heard about Slippage and there is a high likelihood that you may have experienced it when trading. In this article we will address the good, the bad and the ugly side of Slippage in the Retail FX market and we will look to calm some of the theories which traders have about the Slippage practices of their Brokers while also advising on how to ensure you are receiving fair fills on your orders.
So what is Slippage?
Slippage occurs when a trader is filled at a price different to the one which they have requested. Traders may experience either Positive Slippage (being filled at a better price than requested) or Negative Slippage (being filled at a worse price than requested), though it is Negative Slippage which has become a hot topic amongst traders who feel they are receiving an unfair amount Negative Slippage from their Brokers.
Before delving further into Slippage it is worth pointing out that not all order types are susceptible to the same type of Slippage, Market/Stop Orders can experience either Positive or Negative Slippage while Limit Orders can only receive Positive Slippage.
So how and why does Slippage occur? Slippage is a common FX market practice and it occurs as trades can only be filled at the prices which are available at the time your order is triggered/placed and then executed, if the price you requested is no longer available then you will receive Slippage as it should not be possible for your order to be executed at a price which no longer existed in the market.
It is important to note that Slippage can occur at any time, even in calm markets, however Slippage during this time is minimal and maybe as little as one point, the main occurrence of Slippage is during periods of volatility when the markets are moving sharply and gaps or prices jumps may occur. As Slippage is most frequently seen at volatile periods it is most commonly experienced around the release of important economic data/news which may have a major impact on the FX Market.
There is a common misunderstanding among retail traders when it comes to Slippage, we have found that many traders are of the belief that their Broker is solely responsible for filling them with Negative Slippage after a sharp market move. However, the truth of the matter is that the Broker is quite often in a similar position to the client, as they are totally dependent on the pricing from their LPs and they can only fill their clients at the prices which they have available. If a Broker fills a trader with 80 pips negative Slippage after the NFP then it is highly likely that the market gaped that amount or more after the release, trust me, this does happen but retail traders are somewhat sheltered from these extreme moves and many feel that they are unfair, while many choose to ignore the fact that it is not the Broker who controls the FX market.
When discussing topics such as Slippage I may defend the Brokers actions when their actions are a circumstance of external factors such as market liquidity and pricing, however there is an ugly side to Slippage with some Brokers employing practices which are both unfair and illegal. Over the past few years we have seen Brokers being fined for asymmetrical Slippage, where they pass the Negative Slippage but not the Positive Slippage to clients, this behaviour is in the minority amongst Brokers but it does exist and traders should be know how to spot it and how to act. Firstly, all traders should know, you cannot be filled in the gap, if there is a gap there is no pricing to fill your trade!!!
If you feel you have received unfair Slippage we would advise you to request the following from your Broker in order to ensure that your fill was accurate and at a valid market price.
1. Request the Pricing at the time your trade was executed, if the market jumped 60 pips you will see the pricing for yourself.
2. As VWAP or rejections can result in a fill price worse than the Top of Book you should request the Depth of Market at the time of execution to see evidence of your fill price.
3. If all of the above fails and a fill against a LP is blamed, then you should request the Deal Ticket vs the LP at the time of execution.
I hope the above does help and If you feel like you need advise or help when it comes to your Broker, please reach out and we will gladly assist your query and do our best to point you in the right direction.