Slippage could happen in every trader, even those with long experience in CFD trading. Be it trading stocks, futures, or Forex, you will most likely encounter slippage because it just suddenly happens when you acquire a different price from the ones you are expecting to have every time you enter or exit a trade. No matter how much you know about what is a CFD, you will end up with losses if you won’t prevent slippage.
Different Orders Types and Slippage
Every time a trader makes use of market orders. These market orders are composed of different types of orders that are used when entering or exiting a position in the market. One way to limit slippage is to use limit orders instead of market orders.
When you use limit orders, it only gets filled up with the price that you want or at a much better price. But with marker order, your positions won’t get filled up with the worst prices. With limit orders, you can evidently avoid slippage but there is an advantage that you have to deal with. Limit orders work if the specific price that you set is reached.
Entering a CFD Trading Position
A stop-limit order and limit order are mostly used at the start of the trade. Using these order types, you either get the price that you want or the order will not push through. Other traders think that limit orders will only make them miss some good trading opportunities. They failed to realize that without it, they would be suffering from slippage.
Meanwhile, market orders can execute your trades but the possibility of slippage is there at the worst price possible. The most important thing you can do is to plan your trades and incorporate stop limit and limit orders into your positions to avoid unnecessary slippage at the end of your trades.
Exiting a CFD Trading Position
If you are already trading, you most likely understand that you are putting your money on the line. When exiting a trade, you know that you have less control over it than entering a trade. Market orders are effective if you want to get out of your positions as quickly as possible. Limit orders can also be used so you can exit your positions under favorable circumstances. Knowing how to use risk management tools and what is a CFD will help you become profitable in trading.
When Does Slippage Occur?
One of the reasons for the biggest slippage that could happen in your account is due to major news events. For day traders, it is advisable not to trade when there are scheduled new events. Big moves in the market might be pretty alluring for you, but when you try to get in and out of the market with the profit that you want, that would be quite difficult.
In case you already opened a position when the economic news was released, you will face experience slippage on the stop-loss that you’ve set which in turn, would cause more risks than your gains. If possible, check the economic calendar for incoming economic news and similar announcements that could change the movement of the market. If you are already aware of the financial news ahead of time, you can avoid trading before the announcement of the news.