<p>Slippage in Forex trading refers to the difference between the expected price of a trade and the price at which the trade is actually executed. It occurs due to the delay between the time a trade order is placed and when it is filled by the market, often due to rapid market movements or high liquidity.</p>

<h2>How It Works</h2>
<p>Slippage can occur in both directions, positively or negatively, depending on market conditions. Here's a breakdown of how it works:</p>
<ul>
  <li><strong>Positive Slippage:</strong> When the trade execution price is more favorable than the expected price. For example, if you place a buy order at 1.2000, but the market moves to 1.1995 before your order is filled, you get a better entry price.</li>
  <li><strong>Negative Slippage:</strong> When the trade execution price is less favorable than the expected price. Using the same example, if the market moves to 1.2005 before your buy order is filled, you get a worse entry price.</li>
</ul>
<p>Slippage is more likely to occur during periods of high volatility or when trading with wide spreads, such as during news releases or when trading exotic currency pairs.</p>

<h2>Why It Matters for Traders</h2>
<p>Slippage can significantly impact a trader's bottom line, especially for those using tight stop-loss orders or trading with high leverage. Here's why it matters:</p>
<ul>
  <li><strong>Profit and Loss:</strong> Slippage can widen the <a href="/NewSite/encyclopedia/spread/" class="ency-link">spread</a> between your entry and exit prices, reducing your profit or increasing your loss.</li>
  <li><strong>Risk Management:</strong> Slippage can cause your stop-loss orders to be filled at worse prices, exposing your trades to greater risk.</li>
  <li><strong>Transaction Costs:</strong> Slippage can increase your overall transaction costs, as you may be paying more to enter or exit trades.</li>
</ul>

<h2>Example</h2>
<p>Let's say you're trading EUR/USD with a spread of 1 pip. You place a buy order at 1.1850, expecting to enter the market at that price. However, the market moves rapidly, and your order is filled at 1.1852. In this case, you've experienced 2 pips of negative slippage, which widens your spread and reduces your potential profit.</p>

<h2>Key Takeaways</h2>
<ul>
  <li>Slippage is the difference between the expected and actual execution price of a trade.</li>
  <li>It can occur in both positive and negative directions, depending on market conditions.</li>
  <li>Slippage can impact a trader's profit and loss, risk management, and transaction costs.</li>
  <li>Traders can mitigate slippage by using limit orders, trading during less volatile periods, or choosing brokers with tight spreads.</li>
</ul>