What is Slippage?

In Forex (foreign exchange) trading, slippage refers to the difference between the expected price of a trade and the actual price at which it is executed. It occurs when the market moves between the time a trade is initiated and the time it is completed. Slippage can be either positive (if the price moves in your favor) or negative (if the price moves against you).

How Slippage Can Occur in Forex: High Market Volatility: When the market is moving quickly, such as during major news events or economic data releases, prices can change rapidly. This can lead to slippage as there may be a delay between the moment a trade order is placed and when it's executed, causing the price to shift.

Low Liquidity: If there are not enough buyers or sellers to fill an order at the expected price, the trade will be executed at the next available price, which may result in slippage. This typically happens during off-peak hours or in less liquid currency pairs.

Order Types: Market orders, which are executed immediately at the best available price, are more prone to slippage compared to limit orders, which specify a maximum or minimum price.

Why Slippage Does Not Happen in Demo Trading: In demo trading, slippage generally doesn’t occur because demo accounts use simulated market conditions. Demo platforms often assume perfect market execution, meaning that your trades are filled at the exact price you requested. The real-world factors of volatility, liquidity, and order execution delays are not reflected accurately in demo environments.

As a result: There is no competition for liquidity. Prices do not fluctuate as they would in a live market. Execution speeds are often idealized. This creates an environment where trades are executed exactly as expected, which does not reflect the real risk of slippage that live Forex traders face.