Managing Slippage in High-Impact News & Low-Liquidity Conditions

How to Manage Slippage in High Impact News Conditions

Trading in the finance market is a smooth journey, until and unless you meet ‘slippage’. Have you ever tried to make a trade at a specific price only to see it executed at a different one? If so, you’ve already encountered the slippage. However, if not, then this guide can be helpful for you.

Either way, we are about to decode the definition of slippage and the reason behind its occurrence during market hours. We will also tell you how you can protect your money while managing slippage and understand liquidity conditions. Let’s get started:

What Exactly is Slippage and Why Does it Happen?

The question of what is slippage in trading can be described simply as the difference between the price you are willing to accept and the price at which the trade executes. Suppose you visited a store to buy an apple for $1. By the time you reach the store, the shopkeeper has raised the price to $1.10 because five people have already bought it, and this is the last item remaining. Here, the ten-pence difference is slippage.

In the trading world, the markets are constantly moving. Whenever you click on ‘buy’ and ‘sell’, your request travels across servers, which may take time; though for milliseconds, the price can fluctuate.

Why Does High-Impact News Cause Slippage?

Have you ever wondered why the market hikes all of a sudden when a high authority government official speaks, or an employment report is released? Such events are known as high-impact news events. Whenever important data like interest rate changes or inflation figures are released, every single trader in the world starts reacting at the same time.

This bulk interference causes the price gap. Forex technical analysis shows that bulk interference tends to increase the percentage of current market stocks, rather than allowing them to move gradually. Thus, high-impact news becomes the reason behind the big leap in prices.

What is Low Liquidity and How Does It Affect You?

To get friendly with slippage, you must know the concept of liquidity. It is a simple measure of how much buyers and sellers are active in the market. When liquidity is high, it creates chances for many traders to trade with you. It causes slight movement in prices. On the other hand, low liquidity denotes that there are fewer people interested in the trade.

Low liquidity generally occurs on late nights, bank holidays, or right before high-impact news events. During these movements, a tiny trade can push the price significantly. For instance, if you plan to sell a large amount of an asset when there are no buyers available, you will be forced to lower your price until a buyer is found, resulting in significant slippage and reduced profits.

How to Manage Slippage During Low Liquidity and High Impact News?

Managing slippage requires proper attention to the market and an effective investment plan. Here are some tips that can protect you from failing:

1.      Avoid High-Impact News Release Order Slippage

You should try to avoid trading during a major news release. It is impossible to predict price movement during this time. It is also a time when spreads increase and prices can avoid being executed at the candles' up or down.

     2. Use Limit Orders

Instead of sending a market order, consider sending a limit order. That way, you can specify the highest price you are willing to pay to enter a trade or the lowest price you are willing to receive to take a trade.

     3.Watch the Market Liquidity

The market is known to thin out during after-hours sessions or holidays. Stay away from these times. When the market thins out, you will find only a few or sometimes no one standing to show interest in buying.

    4. Use Wider Stop-Losses

Unless the broker offers guaranteed stops, consider setting wider stops to avoid being stopped out by volatility. Not following this, you are inviting the market to expel you from a winning trade before it gets started.

Conclusion

Slippage is an unavoidable part of the Forex trading world. Whether it is occurring due to high-impact news or low liquidity conditions, it shouldn’t be a deal breaker for your trading strategies. To protect your capital during slippage, it is important to have patience and favour Limit Orders that give you entry over your price, while staying on the safe side.

Always keep in mind that successful trading is not just about finding the right path; it’s about entering safely into the market and exiting by protecting your assets, which needs to be your primary goal over making profits. By respecting market volatility and following the tips given above, you can navigate through slippage without facing losses.