Brokers

Execution & Slippage


Jul.20.2013

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The quality of execution is extremely important to a trader's bottom line.

Under normal market conditions (that is, normal liquidity and no important news releases or surprise events), there really is no reason for your broker not to fill you at, or very close to, the market price you see when you click the "buy" or "sell" button.

A good forex broker will execute your order at your requested price in times of volatility as well. If the broker fails to execute your order, that is when slippage occurs: when a limit order or stop loss order is executed at a worse rate than the one originally set in the order. To be fair, sometimes extreme volatility, perhaps caused by an important news event, makes executing an order at a specific price impossible. In this situation, most forex dealers will execute the trade at the next best price.

Worrying about slippage is especially important if you are a day trader or a scalper. A scalper is someone who trades rapidly and holds a position for a very short period of time. Scalping usually results in small gains (or losses,) that add up to a large return (or total loss) at the end of the day. While Invest Diva doesn’t usually approve of scalping, some traders enjoy the adrenaline released as they hop on one trade to another, and some actually do end up making money if they play they cards right. The problem with scalping is that you won’t have enough time to confirm all 5 points of the Invest Diva Diamond before placing an order.

One way to test a broker’s slippage rate is to start with a demo account, although with most brokers, a good experience on the demo does not guarantee the same on the live. However, it will give you a good idea of how the platform works. Once you are OK with the demo, I suggest that you open a small account initially just to test the live system. If you see that the platform suits your needs, you can just increase your deposit and trade higher volumes.

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