Slippage is the difference between the price a trader expected a trade to go through at and the actual transaction price. Essentially, slippage occurs when a trader enters an order at the price displayed on his trading terminal and then sees that trade executed at a worse price, resulting in a bad fill.
The foreign exchange market is huge, fast and liquid, so there is very little slippage compared to other markets. That said, slippage does tend to occur during volatile period or before and after important news events like economic releases. This is because traders pull back and the volume shrinks, meaning some trades are not being executed at the specified price because the number or buyers and sellers has temporarily decreased. Some slippage may be due to a broker error – intentional or not – but these cases are rarer than most traders think. If a trader is consistently seeing slippage and getting bad fills, then a broker change may be in order.
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