Slippage is the price movement amount from when an order is placed until it is executed. This occurs when an order is executed at a better or worse price than initially indicated. For example, slippage might happen during periods of high market volatility.
Why Does Slippage Occur?
Slippage happens because a buyer and seller must be willing to trade at the same price and volume for a trade to be executed. While JustMarkets provides Market Execution, if there is a mismatch, the order will be executed at the next available price.
For instance, if you place a buy order at 1.5005 but there are no sellers at that price, your order might be executed at 1.5010, resulting in a slippage of 5 points.
Note: Slippage is common during high volatility, such as when important economic news is released. Market algorithms often withdraw their limit orders before such events, causing a lack of market depth and increased volatility.
Positive Slippages
It's important to note that slippage isn't always negative. Positive slippage occurs when an order is executed at a better price than expected. For example, if you place a market buy order and the best available price drops sharply, your order might be filled at this lower price, resulting in positive slippage.
Simply put:
Positive slippage is when buying occurs at a lower ask price or selling at a higher bid price.
Negative slippage is when buying sees a higher ask price or selling experiences a lower bid price.
How to Protect Yourself from Slippage
Traders must understand that slippage is a natural part of market conditions, particularly when liquidity is low. To mitigate the effects of slippage:
Be cautious when trading during news releases, as slippage is more likely to occur.
Understand that stop-loss orders, being market orders, can trigger slippage during volatile periods.
Monitor market conditions and consider using limit orders to control the price at which your trades are executed.