What Is FX Slippage? Causes, Fixes and the Effect on Cashback
Have you ever been confused when an order filled at a different price from the rate you placed?
In short, that gap is slippage, and it can go against you or in your favor. It is caused by thin liquidity and sudden price moves, and you can limit it to some extent by choosing the time of day and order type.
This article explains when it happens, how it relates to order types, fixes and how to think about cost. By the end, you will know the steps to reduce slippage in your own trading.
In short: slippage is the gap between order and execution, and you can do something about it
- Slippage is the difference between the order price and the actual execution price
- It can go in a favorable direction (positive slippage) as well as an unfavorable one
- It is likely when liquidity drops, such as around data releases, market gaps and thin early-morning trading
- Setting a max deviation and choosing your trading hours helps limit unfavorable gaps
- Cashback does not compensate for slippage
What is FX slippage?
Slippage is the difference between the price at which you placed an order and the price at which it was actually executed. It arises when the rate moves while the order is being processed.
On a buy order, filling at a higher price is unfavorable. Filling at a lower price works in your favor.
Buy order example
If you place a market buy at ¥150.000 and it fills at ¥150.003, that is an unfavorable gap of 0.3 pips. If it fills at ¥149.998, it is a favorable gap of 0.2 pips.
Unfavorable and favorable gaps
A gap in the unfavorable direction is called negative slippage, and one in the favorable direction is called positive slippage. Which one occurs depends on price movement and market depth at the time.
Brokers differ in whether they pass favorable gaps into the execution price. Check the trading rules on the official page.
When slippage is likely, and what to do about it
Slippage grows when buy and sell orders become temporarily one-sided. Prices move fast and fewer prices are quoted.
| Situation | Likelihood | Main fix |
|---|---|---|
| Around economic releases | High | Hold off on new orders around the release |
| Weekly market gap at the open | High | Avoid stop and market orders right after the open |
| Thin early-morning liquidity | Somewhat high | Limit trading to hours with high volume |
| Sudden remarks by key figures or breaking news | High | Leave room in your stop-loss width |
| Normal conditions in high-volume hours | Low | Regular orders are fine |
A guide to trading hours is also covered in the article on overseas FX trading hours and server time. Convert release times to Japan time when you check them.
How order types relate to slippage
How easily gaps occur changes with the order type. Knowing how each works helps you pick the right order for the situation.
| Order type | How it executes | How slippage appears |
|---|---|---|
| Market | Prioritizes execution | Tends to differ from the quoted price |
| Limit | Prioritizes price | Unfavorable gaps are less likely. It may not fill |
| Stop (stop-loss) | Becomes a market order once reached | In sudden moves it can fill at a worse price than set |
A stop order becomes a market order once the set price is passed. For that reason, in a sudden move it can differ from the stop-loss price you set.
Specific ways to reduce slippage
- 1
Set a max deviation
Market orders in MT4/MT5 have a "max deviation" setting. Deciding the gap you will accept makes it easier to avoid fills at unexpected prices.
- 2
Avoid the time around releases
Check the time of major releases in Japan time and hold off on new orders before and after.
- 3
Choose high-volume hours
Gaps tend to be smaller in hours when more prices are quoted.
- 4
Use limit orders where suitable
If you are not in a hurry, use a limit order and have it fill at the price you specify.
- 5
Leave room in your stop-loss
Decide the stop-loss width with gaps in mind, and adjust your lot size.
Slippage is a cost: real cost and cashback
Trading costs are not only spread and commission. Slippage also acts as a real cost.
You can think of real cost as spread + commission + slippage - cashback. The table below is a worked example using hypothetical values for explanation.
| Item | Hypothetical value (pips) | Amount per lot |
|---|---|---|
| Spread | 0.8 | ¥800 |
| Commission | 0 | ¥0 |
| Slippage (average) | 0.3 | ¥300 |
| Cashback | -0.2 | -¥200 |
| Real cost | 0.9 | ¥900 |
The calculation is 0.8 + 0 + 0.3 - 0.2 = 0.9 pips. Cashback is returned according to the lots executed and does not compensate for slippage itself.
How gaps appear changes with the broker's execution method (STP, ECN or market maker). Check the method on each broker's official page.
- Comparing spreads is covered in detail in the cost calculation article
- Comparing real costs is covered in the trading cost comparison article
- If you trade more often to chase returns, total slippage also rises
Estimate the cost per trade from spread and lot size. Use it as a starting point for real cost that includes slippage.
Calculate spread costFAQ
Q.What is slippage in FX?
It is the difference between the price you ordered at and the price at which the order was actually executed. It arises when the rate moves while the order is processed. It can go in a favorable direction as well as an unfavorable one.
Q.When is slippage most likely?
Around economic releases, at the weekly market gap, in thin early-morning liquidity and during breaking news. It tends to grow when prices move fast and fewer prices are quoted.
Q.Does cashback compensate for slippage?
No. Cashback returns part of your trading cost according to the lots executed. The basic way to deal with slippage is to adjust your trading hours and order types.
This article is for information purposes only and is not investment advice. Conditions may change, so please check each broker's official page for the latest information. Offshore FX and CFD trading carries a risk of losses exceeding your principal.
