In the trading world, the price you see on the screen is not always the price you get. This difference is known as Slippage. Slippage is one of the biggest challenges traders face, especially during major economic news releases.
In this guide, we’ll explain in detail what causes slippage, why it’s so dangerous during news trading, and how advanced automated copy trading technologies can protect your account from it.
What is Slippage?
Slippage occurs when your trade order is executed at a different price than the one requested. This often happens during periods of high market volatility, rapid price movements, or when there is a sudden lack of liquidity.
Illustrative Example
Imagine you want to buy the EUR/USD pair and the displayed price is 1.1050. You hit the “Buy” button, but due to rapid market movement, your trade is executed at 1.1052. This difference of 2 pips is called slippage.
Types of Slippage
Many believe that slippage is always bad, but the truth is it can also work in your favor:
Negative Slippage
Occurs when the execution price is worse than requested. For example, you ask to buy at 1.1050 and the execution is at 1.1052 (higher than you wanted). This means you pay a higher cost to enter the market, reducing your potential profits.
Positive Slippage
Occurs when the execution price is better than requested. For example, you ask to buy at 1.1050 and the execution is at 1.1048 (cheaper than you wanted). This means you entered the market at an excellent price, providing you with extra profit.
Why Does Slippage Happen Heavily During News?
Times of major economic news releases (like NFP reports or Interest Rate decisions) are breeding grounds for violent slippage, due to the following reasons:
- Sudden Liquidity Drain: Seconds before the news, major liquidity providers and banks withdraw their limit orders from the market to protect themselves. This leaves the market order book empty.
- Price Gaps: When the news hits, the price jumps in fractions of a second. If you request a buy at 1.1050, the next available price in the market might literally be 1.1060. You are “slipped” to this new price.
- Spread Widening: During news, the difference between the bid and ask prices widens wildly, which further exacerbates the effect of slippage.
How Does TV2Broker Protect You from Slippage?
If you are managing funded accounts (Prop Firms) or copying trades, severe slippage is enough to destroy your account and violate drawdown rules. That’s why at TV2Broker, we’ve built a firewall to prevent this:
- Max Slippage Feature: Through our dashboard, you can define a maximum acceptable slippage limit (e.g., 2 or 3 pips). If the server attempts to execute the trade and the slippage exceeds this limit, the tool will automatically reject the trade to protect your capital.
- Ultra-Low Latency Execution: Our cloud servers are cross-connected directly to global liquidity data centers (Equinix). This means trades are transmitted in less than a millisecond, preventing latency-induced slippage.
- Smart News Filter: If you don’t want to risk trading during news at all, you can enable our feature to automatically pause trading before and after high-impact news events.
Frequently Asked Questions
Is slippage a scam by the broker?
No, slippage is a natural phenomenon in financial markets caused by rapid liquidity changes. However, some unreliable brokers (B-Book) might intentionally induce negative slippage. Therefore, choosing a transparent broker with deep liquidity is crucial.
Can slippage be eliminated 100%?
It cannot be completely eliminated in real markets (STP/ECN). However, by using professional copy trading tools that offer a ‘Max Slippage’ limit and utilizing ultra-fast servers, you can reduce it to the absolute minimum and protect your account from disastrous slips.
Pro Tip: If you are managing a Prop Firm account, always ensure that the ‘Max Slippage’ setting in your copy trading tool is configured to protect yourself from wild news volatility.