Steps in trade: decryption • Funding Héros

Slipage in English literally means slipping or slipping. And in the financial world, it designates an important phenomenon to know if you want to invest in the stock market.

➡️ But what is a slide in trade? And how can you protect yourself from it? We give you our best methods!

Slippage? Definition

🎯 Slippage in trading is the phenomenon where a transaction is executed at a different price than the one a trader wants.higher or lower than expected.

Slippage can occur at any time for two main reasons:

  • The first reason is the high volatility of the market. When prices suddenly move beyond your stop order, the trade may not close in time and the stop may not trigger at the level it was set at.
  • The second reason is the existence of a market gapthis happens when the market moves up or down quickly, with little or no trading in between.

➡️ But is sliding necessarily to your disadvantage? Let’s see it!

Slippage: good or bad?

Slippage can be both good and bad, depending on the direction in which it occurs.

📓 The way slippage works is tied to the order book, which is a list of pending buy and sell orders in the market. When a trader places an order, there may be changes in the order book between the time the order is placed and the time it is executed, resulting in slippage.

To better understand slippage, imagine that you place an order to sell a stock at a certain price. However, you do not have priority to the order book, and while you wait for the order to be executed, the share price changes. Eventually, when your turn comes in the order book, your trade will be executed at a slightly different price than what you originally wanted.

➡️ So slippage can be to your advantage in certain situations because it can allow you to execute an order at a better price than expected. However, it can also work the other way around, meaning you may suffer a loss or see your potential gain reduced if the price moves unfavorably.

To protect yourself from slippage in the financial markets, it is important to take preventive measures. 👇

Choosing the best broker

Choose a broker that offers protection tools such as guaranteed stops and limit orders. These functions allow you to better control the execution of your orders and limit the risk of slippage. Here are the brokers we recommend:

eToro

eToro

Simple platform, ideal for beginners. Attractive prices!

  • Minimum deposit : €100
  • Stocks and ETFs
  • CFDs and Forex
  • Cryptocurrencies

GIGI

GI

A very wide universe, a platform dedicated to expert traders.

  • Minimum deposit : €300
  • Stocks and ETFs
  • Turbos & Warrants
  • CFDs and Forex
  • Cryptocurrencies
  • 0 exit fees

Capital.comCapital.com

Capital.com

Very nice platform + a wide selection of crypto and commodity CFDs!

  • Minimum deposit : €20*
  • Shares and ETFs (CFDs)
  • Forex (CFD)
  • Cryptocurrencies (CFDs)
  • 0 exit fees
  • 0 deposit/inactivity fees

➡️ Find our selection and comparison of the best brokers here.

Use guaranteed stop losses

Explanatory chart of a guaranteed stop lossExplanatory chart of a guaranteed stop loss
Explanatory chart of a guaranteed stop loss.

Guaranteed stops differ from traditional stop losses because they guarantee that your order will be executed at the price you specify, although the market is developing rapidly. This can be particularly useful during periods of very high volatility. However, remember that using guaranteed stops may incur additional fees, so check your broker’s terms and conditions.

Other protection methods

To protect yourself from slippage, there are other strategies you can implement in addition to the choice of broker and the use of guaranteed stops:

  • Limit orders : When you place a limit order, you specify the exact price at which you want to buy or sell an asset. This means that the order will only be executed if the market reaches the price you set or a better price. This allows you to precisely control the execution price of your order and limit the risk of slippage.
  • By order : This strategy allows you to sell an asset at a higher price than the current market price. You specify a percentage or dollar value that the asset must reach before the sell order is triggered. This allows you to take advantage of potential market increases while avoiding selling prematurely during minor fluctuations.
  • The trigger sequence : With this strategy, you specify a price range to trigger a buy or sell order. The order will only be executed when the market reaches the trigger price you specified. This approach gives you the flexibility to take advantage of market movements while controlling the price at which the order will be executed.
  • Choose the right time : Avoid placing orders during periods of high volatility or low liquidity. Markets can be more unpredictable during these periods, which can increase the risk of slippage. Choose quieter market periods to place your orders.
  • Avoid securities that are too volatile or illiquid : Certain assets may be subject to excessive volatility, which may result in rapid and large price movements, thereby increasing the risk of slippage. Similarly, illiquid assets can have lower order books, which can also lead to greater slippage. Choose more stable and liquid assets to limit the risk of slippage.

By using these different strategies, you can improve your ability to deal with slippage and reduce its impact on your trades. However, it is important to note that slippage is an integral part of trading and can still occur despite your preventive measures.

➡️ In conclusion, careful order management and a thorough understanding of how markets work are therefore still essential for successful trading. To get a good foundation, we invite you to follow our free 7-day training.

Frequently asked questions

What is crypto sliding?

Crypto slippage occurs when a cryptocurrency transaction is executed at a different price than the trader originally intended it to be.
As in other financial markets, crypto slippage is caused by rapid and unpredictable fluctuations in the prices of cryptocurrencies.
When the order book changes rapidly between the time the trader places the order and its execution, the actual execution price may differ from the desired price, leading to slippage.

How to avoid slippage in trading?

To avoid or reduce slippage in trade, here are our recommendations:
Use limit orders : By placing limit orders, you specify the price at which you want to buy or sell a cryptocurrency. This limits the risk of having your order executed at a less favorable price in the event of rapid price fluctuations.
Be cautious during periods of high volatility : Cryptocurrency markets can be extremely volatile. Avoid placing orders during periods of high volatility to reduce the risk of slippage.
Use guaranteed stops : Some brokers offer guaranteed stops, which guarantee that your order will be executed at the specified price, even if the market moves quickly. This can be useful to limit slippage in case of large price movements.

Can gliding benefit you?

Yes, in some cases sliding can be to your advantage. For example, if you place a sell order and the price drops suddenly, you can take advantage of a positive slippage by selling your asset at a higher price than expected. Likewise, if you place a buy order and the price rises quickly, positive slippage will allow you to buy the asset at a lower price than you expected.
However, it is important to note slippage is generally considered a risk in trading, as it may also lead to losses or less favorable execution prices.

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