Slippage-RequoteWhy Does This Happen?
What is the slippage
Slippage is an execution of an order at a price different from the one required by the client.
This difference is often not in favor of the trader, but in some rare occasions it may be favorable. In addition, this different assignment may occur both at the opening of the trade and on the stop loss.
Let's make a practical example: suppose we want to trade eur/usd by entering an order stop entry at 1.1600: the price is experiencing an upward movement that will hit our order, but does not execute it immediately and shortly thereafter we find ourselves in the platform inserting an order at the highest price, say 1.1620, so with 20 pips of missing profit.
Likewise, as we have said, slippage may also involve the stop loss, so perhaps in this situation our stop loss was placed at 1.1580 and the platform executed it at 1.1560, 20 pips of additional loss compared to what was estimated.
Why can this happen?
When we place an order on the platform, we are basically telling the broker "find someone willing to buy at the price I choose", but when there are thousands of other traders who like us are making the same request, we create a long queue and it may happen that we are positioned at the bottom of this queue, and all merchant counterparts willing to buy at that price are assigned to other sellers before us: during this break (even for just a few seconds) the price can change fast, when the broker finds the first bid for the purchase, we will be assigned a different price than the one initially required.
This often happens when there is a large amount of trade and volatility, due to the release of important financial news, or on Sunday night, when market is re-opening: in these situationsprice often change even in milliseconds. This is why slippage may also happen at the most technically sophisticated brokers, therefore you have to consider it as a risk component when trading, and evaluate it in any strategy that is being chosen. Each of us has its own appetite for risk, so it is up to us to decide whether to place a platform order behind a major market maker or on Friday night before the market closes.
Warning! Some unskilled or unprofessional brokers often have a higher frequency and greater amount of slippage, so we recommend using highly accredited brokers.
The requote occurs in the same conditions as the slippage, but in such cases the broker, before placing the order, presents to the customer a notice indicating the possibility of doing business at a rate other than the one required - indicating that the rates originally requested are no longer available.
the Analyst's answerJean Grossett - Financial analyst
When shopping for a broker, it is important to inquire of the brokers’ maximum allowable slippage distance in pips when opening trades via pending orders or stop loss levels. This should be done irrespective of whether the broker is a market maker broker or an ECN broker.
the Manager's answerRobert Danvil - Investment Manager
During strategy development stage of mechanical trading systems, especially those that look into capturing little moves in the markets, slippages can make such a strategy unsuccessful.
It is common amongst unregulated brokers to use slippages as a mechanism for hunting stop loss levels of their customer, as well as not filling their trades at suitable entry levels. In summary, every serious trader must carry out his or her own due diligence, by going through reviews on forums to find out how real life customers of a choice broker are responding to issues that have to do slippage and requotes.
the Mentor's answerNicholas Kihn - Forex coach and mentor
When developing expert advisors (EAs), it is important to include an external variable that holds the maximum number of retries in the event of requotes. I will advise s retry number of 3 times for swing trading, and 1 time retry for a scalping strategy.