Avoiding Slippage in Forex
There’s no single experienced Forex broker who hasn’t heard about “slippage” in Forex trading. Slippage occurs when a currency order is filled at an unreasonably high price, often above the asked price. Normally this happens during high volatility and times when orders can’t be matched at desirable prices. This can be a very costly problem and can cause Forex traders to become bearish (that is, they become less inclined to trade with Forex).
As soon as you see signs of slippage in the fire, get out. Your capital would be better placed in some other type of FX trading account. Here are some tips on how to avoid slippage in for:
* The relationship between slippage and high volatility can be studied. The two go together because price fluctuations induce high volatility. When there is slippage in force, many traders get into trouble because they chase the low liquidity prices instead of waiting for the price to go back up. While it may seem logical to pursue low liquidity prices, they can also be indicators of upcoming news or economic reports. Therefore, you really should avoid slippages at all costs.
* Another reason why you should avoid slippage in force is because it presents a major risk of error. The slippage indicator tells you the difference between the bid and ask price. But since there isn’t any official body that keeps track of currency pairs, you are prone to miss out on profitable trades. Most experts say that there are hundreds of different price patterns that traders should look out for. So when you learn how to avoid slippage in force, you need to constantly monitor different price patterns so you won’t miss any profitable trades.
* Limit orders and stop orders are commonly used in forex. But it is also important to know how to use them properly. For example, limit orders are useful for situations where you expect the volatility will be extremely high. On the other hand, stop orders let you stop transactions when the slippage indicator cross the resistance level.
* One important aspect about limit orders is that they help you set your stop loss and take profit accordingly. How to avoid slippage in forex involves setting stop orders at different price levels. If you trade using limit orders, you are guaranteed to enter and exit a trade with higher efficiency. You can also choose to enter and exit the market at different times. This allows you to take advantage of the difference in volatility between the two times.
* Liquidity is another factor that is important for successful trading in forex. In a highly liquid market, traders can easily get an edge over others by having access to liquid capital. Liquidity in a Forex market means that traders can always find a buyer for their assets. On the contrary, in a market like emarket, traders have to face the risk of not being able to find a seller to shoulder the risk of trading.
* Most importantly, learn how to avoid trading slippage by being up to date with the news event. The most recent event that affects the value of the US dollar is the outbreak of the West Nile virus in New York. The sudden rise in the number of mosquitoes has created havoc in its transportation. Because of this, the dollar’s value has drastically fallen against many currencies.
If you are one of those people who are scared of slippage, then you should get over it. One way to do that is to monitor the news release and follow it closely. The news release will let you know the current state of volatility and give you an idea of what you need to do to make the most out of your trading. For most people, it is hard to stick to a trading plan when they are caught off guard by a news event.
The third mistake that is often made by beginner traders is not to trade using stop orders. In forex, stop orders are also known as limit orders. They are used to indicate the maximum loss that a trader is willing to accept. When the asked price is exceeded, a stop order is entered which immediately stops trading activity. The trader will not be able to open a position again until the requested price is again met. There are many instances where traders have suffered huge losses when using stop orders.
The four most common mistakes that novice traders make when learning forex slippage techniques are not setting stop losses, not entering stops early, using leverage or not using enough leverage. These four mistakes have the combined effect of causing more slippage. As a result, it is imperative that you become a skilled forex trader before you start trading. You should find a mentor to learn to trade from. You can also learn from various websites that provide valuable information about forex trading.