How to deal with slippage?

The best way to deal with slippage is to use Limit Orders to buffer against market fluctuations. Limit Orders are preferred over Stop Orders, and have a restriction on the maximum price to be paid (with a buy limit) or the minimum price to be received (with a sell limit). This may result in a favorable slippage. At the same time, Stop Orders can only be executed at the market price once the stock has traded at or through a specified price, which may result in an unfavorable slippage. Below are examples of Limit and Stop Orders when slippage occurs.

Slippage and Limit Orders

Let’s assume that the order opening details are as follows:

• 1 lot GBPUSD

• Buy price: 1.24610

• Stop Loss (SL): 1.24500

• Take Profit (TP): 1.24750

• Price before the gap: 1.24620

• Price after the gap: 1.24830

The Order Buy price is 1.24610, and the Take Profit is set to 1.24750. However, due to a gap in the market, the price jumps from 1.24620 to 1.24830. The set take profit price (1.24750) falls between the gaps, and the order is not executed at the Take Profit price, but at 1.24830.

As a rule, if the spread between the Market Price after the gap and the specified price of the order is equal to or exceeds a certain number of points (zero slippage) of the corresponding instrument, the system will execute the order at the Market Price after the gap. If the spread is less than the zero slippage, the order will be executed at the price you specified.

The spread between the specified Take Profit Price and the Strike Price is calculated as follows:

In this example, the zero slippage interval for GBPUSD is 5. The spread between the set Take Profit Price and the available Market Price after the gap is 8, which is greater than 5, so the order will be executed at the Market Price after the gap with a favorable slippage of 8 pips. This means that the trader's profit is higher than expected when setting the Take Profit.

Slippage and Stop Orders

Now let’s assume that the order opening details are as follows:

• 1 lot AUDCAD

• Buy price: 0.90050

• Stop Loss (SL): 0.89950

• Take Profit (TP): 0.90200

• Price before the gap: 0.90000

• Price after the gap: 0.89800

The Order Buy price is 0.90050, and the Stop Loss price is set at 0.89950. If the price drops to this level, the Sell order will be executed. However, due to a gap in the market, the price fell from 0.90000 to 0.89800. The set Stop Loss price falls between the gaps, and the order is not executed at the Stop Loss price, but is at 0.89800.

The spread between the specified Stop Loss Price and the Strike Price is calculated as follows:

The zero slippage interval for AUDCAD is 10. The spread between the set Stop Loss Price and the available Market Price after the gap is 15, which is greater than 10, so the order will be executed at the available Market Price after the gap. This results in an unfavorable slippage of 15 points, causing the trader to lose more than the expected loss when setting the Stop Loss.