Forex News Straddling Strategy (Part V)
You should know the problem of slippage and how to avoid it if you want to successfully trade the news. Slippage occurs when the price you intend to enter or exit the market is different from your actual transacted price. Currency prices tend to move very fast during highly volatile market conditions. The risk of slippage is usually very high when trading the news.
Placing stop or market entry orders under such times do not guarantee anything. Slippage is the biggest problem when the market moves fast. These orders do get filled but mostly at different prices than you had intended.
Most of the brokers had taken the opposite position themselves as the fast moving market did not allow them to offset these orders in the interbank market. As the broker has the opposite position, if you lose, the broker wins and makes profit. The broker is in fact trading against you now. Many forex brokers will wait till after the big market move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.
Many brokers will fill your stop loss or take profit before filling your entry order with wide slippage. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.
Suppose you have set your long entry stop for EUR/USD at 1.2564 and your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594. Then fill your long entry stop at 1.2604 with a 40 pips slippage.
You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.
Suppose, you had placed your long entry stop at 1.2564. You place your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544. Then fill your long entry stop at 1.2594 with a slippage of 30 pips. You now have a net loss of 50 pips due to slippage instead of planned 20 pips loss.
You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.
Many traders readily accept the risk of slippage as one of the realities of trading the news. However, they should know that slippage can eat up a huge chunk of profits and in the end affect their overall profit/loss. You can overcome the problem of slippage through the use of stop-limit entry order. More on it in the next article! - 23199
Placing stop or market entry orders under such times do not guarantee anything. Slippage is the biggest problem when the market moves fast. These orders do get filled but mostly at different prices than you had intended.
Most of the brokers had taken the opposite position themselves as the fast moving market did not allow them to offset these orders in the interbank market. As the broker has the opposite position, if you lose, the broker wins and makes profit. The broker is in fact trading against you now. Many forex brokers will wait till after the big market move is over. Then they will fill your entry order. Sometimes, these entry orders may even get filled past your stop loss or profit target. This means that you would be left with immediate net loss.
Many brokers will fill your stop loss or take profit before filling your entry order with wide slippage. It is a trick that many forex brokers use in order to make profit by filling your position with a negative spread.
Suppose you have set your long entry stop for EUR/USD at 1.2564 and your profit limit is 1.2594. The forex broker may first fill your take profit at 1.2594. Then fill your long entry stop at 1.2604 with a 40 pips slippage.
You were confident that you would make a winning trade. If the orders had been filled at the prices you wanted, your trade would have resulted in a profit. But now you have a net realized loss. If the trade goes against you, the forex broker may fill your stop loss order first and then fill your entry order with slippage after that so as to widen their profits. With slippage you cannot predict anything what the broker will do with you.
Suppose, you had placed your long entry stop at 1.2564. You place your stop loss at 1.2544. The broker could first fill your stop loss at 1.2544. Then fill your long entry stop at 1.2594 with a slippage of 30 pips. You now have a net loss of 50 pips due to slippage instead of planned 20 pips loss.
You should know as an individual trader that your orders will be kept pending till you get stopped out or your profit limit is reached during the release of news when the market moves fast. The more you stand to lose and the more the forex broker stands to make a profit, the larger the slippage you experience. Some forex brokers add slippage to any of your orders to increase their profits during times of fast moving markets when the volatility is high.
Many traders readily accept the risk of slippage as one of the realities of trading the news. However, they should know that slippage can eat up a huge chunk of profits and in the end affect their overall profit/loss. You can overcome the problem of slippage through the use of stop-limit entry order. More on it in the next article! - 23199
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know These Forex Broker Games. Learn Forex Trading!
posted by X - Men @ 2:41 AM
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