The Basics of Slippage

Why slippage occurs?

When your instruction such as market price order, take-profit order, stop-loss order or pending order is triggered by system price, the system will send your order to liquidity providers to complete trades at the earliest time. In a fraction of a second (usually at millisecond level), if the market price changes, different from popping up“The price has changed, are you sure you want to complete trade?”, Formax platform will not ask client to reconfirm but execute orders directly at the latest price. Slippage is when you get a different price than expected on an entry or exit from a trade.

The following are some explanations for slippage:

1.The size of slippage:
From the perspective of trading principle, slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. In regular trading, prices are little change. At the level of millisecond, slippage usually is a few tenths of a point. While during periods of important data, big new, market opening and closing, prices will fluctuate sharply due to low liquidity, leading to huge different between two quotations, up to several tens of points.If your order price is triggered and failed to be executed, it will be completed at the next quotation. At this time, your slippage might be several points, several tens of points or even several hundred of points. All quotations are from liquidity providers. Some providers may reject to accept orders after quoting to manage risks. In this case, client’s orders will be completed by the next provider, or fail to be executed due to lack of liquidity. Thus we don’t suggest pending orders. Although Formax is not your trading counterparty, your counterparties are several liquidity providers in the very moment. You will be at a disadvantage in the trading.

Formax quotations are from liquidity providers. We can not control quotations, quotation difference and slippage size. Please don’t complain and say words like“I can accept 0.1 slippage, but 3 points is unacceptable”, because at STP mode, all transactions are completed by markets. We can not control slippage since we choose STP mode. Every transaction price does exist in the market, and your order will not be executed at a price that does not exist due to slippage.

In addition, the difference of lot size will lead to different execution price as quotation of each level and available trading volume are decided by liquidity. Formax will try to match trades for clients at the best available prices.

2.Slippage of different products:
Formax offers more than 60 trading products, and each product has different spread and liquidity due to its product features. Slippage rarely happen to high-liquidity products, such as direct trade products and commodities, since they have stable liquidity most of the time (except during periods of big events or news announcement). For thinly-traded products like crosses, they usually have slippage in trading due to low liquidity.

For clients who are not very familiar with market conditions, we suggest to avoid having trades during important data or thinly-traded market, otherwise big slippage will occur due to lack of liquidity.