What is slippage?
Positive and negative effects appeared indirectly
Trade deals are aiming to reach the significant level of gain explained by the difference between cost of object of investment and cost of its selling. Therefore opening of buying position at the lowest price with further selling of it at the highest one are so desirable.
Tools of technical analysis provided by IQ Option platform demonstrate historical costs, past peaks of price and present existing trends. They should be used in for identification of the lowest price in the nearest perspective. According to results on data analysis described above decision about buying or selling of asset is taken. Anyway, certain time is taken for obtaining and processing the information and the respective actions taken, that causes certain effects on market environment described below.
What is slippage
The process described above can be simplified to next scheme: necessary information obtained, analyzed, further actions are determined and taken. All of these steps require time to be performed. Some changes caused from an external side can be applied and influence prices in couple minutes. That’s why sometimes chosen rate for starting buying/selling can be unavailable, in spite it was shown as an option few minutes ago. In this case IQ Option offers next best options.
Fast change of trading conditions including respective movements in rates of an asset is known as “slippage” and can have positive effect or negative. In case selected for buying rate have been increased it is negative. Fallen prices are preferable and have positive effect, because allow to buy an asset cheaper and respectively increase spread and earnings. Reverse situation relates to selling position: decrease in price causes adverse effect and increase - favorable one.
What causes slippage
Slippage effect appears in cases when:
An asset has high volatility;
Breaking news have been released.
All of these used to cause changes in structure of market participants (increase in amount of respective offers or demand) with respective increase/decrease in trading volumes.
What to do if it appears
Depending on factor caused change the respective strategy should be applied. In case high fluctuations are normal for investment object, the positive change is accepted as soon as possible and negative change can be rejected.
In case changes were cause by breaking news they should be analyzed on reliability and on duration and respective decision should be taken.
CFD trading is aimed to earn funds appeared from differences between purchasing and further selling prices. Positions should be opened with the lowest price for buying and with the highest one for selling. Gap between last and current available price is called slippage (in case of cost changes applied in a very short period of time). It can have positive or negative effect determined by respective change in spread obtained.