Trading on MetaTrader 4 can be a thrilling ride, but like any other financial platform, it does have its own share of nuances. One of the more common occurrences that will surprise you anew as well as seasoned traders is slippage. Chances are that if you've ever managed to enter a trade only to find that it has been executed at a slightly different price than you anticipated, then you've seen slippage. What precisely is slippage, and what techniques do you need to use in order to minimize its influence on your trading experience in MetaTrader 4?
What is Slippage?
Slippage is simply a price that you did not expect to pay for your trade, as compared to the price at which it is actually executed. It often is quite prevalent in fast moving or volatile markets where miliseconds-long changes occur in prices. Slippage can be positive or negative. The better price than what was expected results from positive slippage, and the worse price results from negative slippage. Slippage that is negative for traders: For traders, the negative slippage is usually the more alarming situation since it can eat into any potential profits or result in unwarranted losses.
Slippage is a factor of many other things. Volatility, liquidity, and order type play into slippage. For example, at the time of major news releases of economic major news, volatility peaks and price changes may happen so fast that by the time your order reaches the market, the price you clicked on is not available.
Why Does Slippage Happen in MetaTrader 4?
A third global favorite is MetaTrader 4 (MT4), which, however works through brokers connecting the actual markets to traders. The platform itself may be designed to execute orders as efficiently as possible but is restricted by the amount of liquidity such brokers can provide and by the conditions in the market at any given point. When you click to execute an order, the broker's liquidity providers verify if that exact price is still available. If it is not, they offer that which is next best. Slippage arises because in the time span between your clicking and the confirmation of that order, the prices are likely to have moved.
Types of Orders and Slippage
It can be understood that better choices are made if you understand the different types of orders and how they interact with slippage. For instance, market orders are very susceptible to slippage as they are intended to be executed once there is available price. Limit orders have an inbuilt form of price control due to the fact that it specifies both a maximum and minimum price and won't get executed if the price cannot be met. This means that you are protected from negative slippage, but it also holds the potential risk in case the price does not reach your set level.
How to Minimize Slippage in MetaTrader 4
While you might not eliminate slippage altogether, there are a few ways in which you could be doing things to lessen its effect on your trades in MetaTrader 4. Consider these suggestions:
1. Trade During High Liquidity Periods
Low liquidity times tend to mean more slippage. Overlap of the London and New York sessions are, therefore high-liquidity times with more stable prices and less slippage. Sticking to such hours can improve your chances of getting filled at your intended price.
2. Use Limit Orders Instead of Market Orders
One way to protect against unfavorable slippage is the use of limit orders. This allows a means of stating the highest price you are willing to pay for entry or the lowest price you require at exit when you submit an order. The drawbacks are that the order may not be filled if the market price does not reach the desired level, but to a trader, the peace of mind from avoidance is worth it.
3. Monitor the news and avoid trading during major announcements.
Economic events such as a central bank announcement or an employment report can cause sudden shocks to prices in a market. You'll be able to avoid trading when the market is sensitively reacting to news if you follow what's happening with these events.
4. End Slippage in MetaTrader
On MetaTrader 4, the trader can set slippage tolerance. This means defining the biggest level of slippage that an order should face. When trading, you should look for the deviation or slippage tolerance setting that usually appear in the order window. There you could specify just how much movement of price you will tolerate so that you would not allow the order to be filled. The closer the slippage tolerance, the more orders are rejected, but you have fewer shocks from price.
5. Choose a Good Broker
The one you trade through with MetaTrader 4 will make all the difference for your slippage experience. Different brokers have slightly different liquidity and direct connections to a variety of liquidity providers. In this sense, a broker known for fast order execution and with no "re-quotes" may contribute more to decreasing the slippage. However, some have actually brought attention, in particular, by speaking of a "no dealing desk" execution policy whereby your trades get directly into the market, bypassing desks and hence delay-prone.
Slippage is something that can go hand-in-hand with trading, especially in a fast-moving market. Understanding what causes it and how to best manage it could prove to make or break your trading outcomes. Though MetaTrader 4 grants you full access to a huge bunch of tools and settings that will fight slippage on your behalf, it's up to you to apply the strategies that best suit your trading style and risk tolerance. Slippage can be controlled, though, by being aware of the market conditions, carefully choosing your order types, and by utilizing slippage controls by the trading platform, so you can trade with more confidence.
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