Slippage in forex is the difference between the price you requested and the price your order actually fills at. It happens every day, across every account size, and most traders don’t account for it until it costs them a trade they thought was perfectly managed. This guide breaks down exactly what slippage is, what causes it, and how to keep it from quietly eating into your results. Especially important if you’re trading a prop firm challenge where every pip of drawdown counts.
Key Takeaways
- Slippage in forex happens when your order fills at a different price than you requested
- Negative slippage costs you money; positive slippage puts money in your pocket
- High volatility and low liquidity are the two main causes
- Limit orders and guaranteed stops are your best tools to control it
- In prop firm challenges, slippage can silently push you toward a drawdown breach. Here’s how to protect yourself
Table of contents
What Is Slippage in Forex?
Slippage in forex is the difference between the price you requested and the price your order actually filled at. It happens when market conditions shift faster than your order can execute, which is more common than most traders realize.
Here’s a simple example. You place a buy order on EUR/USD at 1.0850. By the time your broker processes it, the market price has moved to 1.0853. Your order fills at 1.0853. That 3-pip gap? That’s slippage.
It can go the other way too. If the market moves to 1.0847 before execution, you get a better price. That’s positive slippage, and it’s real.
Slippage in trading affects every market, but it’s especially relevant in forex because of how fast currency pairs move during news events and session overlaps.
Negative Slippage vs Positive Slippage
Most traders only think about slippage as something bad. But there are two sides to it.
Negative slippage means your order fills at a worse price than requested. You wanted to buy at 1.0850 but got filled at 1.0854. Or you placed a stop-loss at 1.0820 and it triggered at 1.0816. Either way, you lose more than expected.
Positive slippage means your order fills at a better price than requested. You place a buy at 1.0850 and the execution price comes in at 1.0848. That’s a 2-pip bonus. It doesn’t happen every trade, but it does happen, especially with ECN brokers in high-liquidity conditions.
On a true ECN model, positive slippage can occur because the broker passes through the best available market price, including price improvements when liquidity allows. If you’re only ever experiencing negative slippage with your broker, that’s worth noting.
Why Does Slippage Occur?
Slippage occurs when there’s a gap between when you place your order and when it actually executes. Several things drive that gap.
Market Volatility
High volatility is the biggest cause. During major economic data releases (NFP, CPI, central bank announcements), prices can move 20–50 pips in under a second. Your intended execution price becomes unavailable almost instantly. What gets filled is the next available market price, which could be significantly worse.
Low Liquidity
Low liquidity means there aren’t enough buyers and sellers at your desired price level. This typically happens during the Asian session (outside of JPY pairs), around market open on Mondays, or when trading minor or exotic currency pairs. When liquidity dries up, your order skips to the next available price, sometimes several pips away.
Order Types
Market orders are the most vulnerable to slippage because they tell your broker: “fill me immediately at whatever price is available.” That’s a blank check in a fast-moving market. Limit orders avoid this by setting a specified price cap. Your order fills at your price or better, or not at all.
Broker Execution Models
Different brokers handle slippage differently. Market maker brokers sometimes requote rather than slipping you. ECN and STP brokers pass your order directly to the market, which can result in both positive and negative slippage. Understanding your broker’s execution model matters.
Price Gaps
Price gaps create some of the worst slippage. If the market closes on Friday at 1.0850 and opens Monday at 1.0820, any stop-loss set between those levels fills at the opening price, not where you placed it. That can be a significant difference between your expected price and your actual execution price.
How Slippage Affects Prop Firm Challenges
This is the part most articles skip. And it’s important if you’re trading a prop firm evaluation.
In a standard prop firm challenge, you’re working with strict drawdown rules. A typical max daily loss might be 4–5% of your account. That sounds like plenty of room. But here’s the problem: slippage doesn’t care about your drawdown limits.
Say you’re trading a $100,000 evaluation account with a $4,000 daily loss limit. You’re trading 2 lots on GBPUSD and your stop-loss is set at 20 pips below entry. Under normal conditions, that’s a $400 loss if stopped out. But during a news spike, slippage of 5–8 pips means your actual execution price is much worse, turning that $400 loss into a $550+ loss. Do that a few times in one session and you’re closer to your limit than your math suggested.
Practical tips for prop traders:
- Set a max slippage limit in your platform. In MT 4/5, you can set maximum deviation in points inside your order settings. This helps limit how much slippage you’re willing to accept before an order is rejected or requoted, depending on broker conditions.
- Avoid trading around major news events during funded account trading, even if your strategy works. The unpredictability isn’t worth the drawdown risk.
- Account for slippage in your position sizing. Add a 2–3 pip buffer to every stop when calculating your risk per trade.
- Trade liquid currency pairs like EURUSD and GBPUSD during the London or New York sessions. More participants mean tighter spreads and less price difference at execution.
ThinkCapital’s challenge rules allow trading across most major pairs. Stick to the high-liquidity ones, especially around news.
How to Avoid Slippage in Forex
You can’t eliminate slippage entirely, but you can manage it down to a level where it stops affecting your results in a meaningful way.
Use Limit Orders
Limit orders are your first line of defense. Instead of a market order (which says “fill me now”), a limit order says “fill me at this price or better.” If the market moves past your specified price before filling, the order simply doesn’t execute. No bad fill. This is one of the most effective tools for avoiding negative slippage.
Use Guaranteed Stops
Some brokers offer guaranteed stop-loss orders, which are designed to fill at your stated level even during extreme market conditions, subject to the broker’s terms. There’s usually a small premium for this, but for traders in prop firm challenges where every pip matters, it can be worth it. Check whether your prop firm’s platform supports them.
Trade High-Liquidity Sessions
The London/New York overlap (roughly 8am–12pm EST) is when forex market liquidity peaks. More market participants means tighter bid-ask spreads and less distance between your requested price and the execution price. Avoid trading in the last hour before close or during low volatility markets when volume drops.
Avoid Trading Around Major News
Economic calendars are free. Use one. Events like NFP, FOMC decisions, and central bank announcements are predictable. You know when they’re coming. Either close your positions beforehand or stand aside. The potential gains rarely outweigh the slippage and spread risk during these moments.
Trade Major Currency Pairs
Exotic pairs have wider spreads and far less liquidity. Slippage on something like USDTRY or EURNOK can be extreme compared to EURUSD or USDJPY. Stick to major currency pairs with deep markets, especially when you’re in a funded account evaluation.
Check Your Platform’s Slippage Tolerance Settings
Some platforms give you control over maximum deviation, which is the maximum number of points of slippage you’ll accept before the order cancels instead of filling. Adjust this setting to match your strategy. A scalper might set it very tight (1–2 points). A swing trader has more room.
Slippage vs Spread: Key Differences
These two costs often get confused, but they’re different. Spread is the bid-ask spread (the gap between the price buyers will pay and sellers will accept). Slippage is what happens on top of that when execution can’t keep up with price movement.
| Slippage | Spread | |
|---|---|---|
| What it is | Gap between requested price and execution price | Difference between the bid and ask price |
| When it happens | At order execution, in fast-moving markets | Every single trade, always |
| Predictability | Unpredictable | Usually predictable |
| Direction | Can be positive or negative | Always a cost |
| How to reduce | Limit orders, high-liquidity sessions | Choose brokers with tight spreads |
Both affect your bottom line. Spread is your base cost of doing business. Slippage is the variable cost that spikes in volatile markets.
Backtesting vs Live Trading Slippage
This is one of the most important things to understand. Almost no one talks about it.
In many standard backtests, the software assumes fills at the exact price shown on the chart unless slippage or execution constraints are manually modeled. Every entry, exit, and stop fills at the precise requested price. That’s not how live trading works.
In live markets, slippage is real and ongoing. A strategy that shows 30% annual returns in backtesting might only produce 18–22% live because slippage eats into every trade across hundreds of executions.
Before running any strategy in a prop firm challenge, add a slippage buffer to your backtest. A rough approach:
- Add 1–3 pips of slippage per trade to your modeled entries and exits
- Re-run the backtest with those adjusted fills
- If the strategy still shows positive expectancy, it’s more likely to hold up live
This one step filters out a lot of strategies that look great on paper but fall apart in real market conditions.
Frequently Asked Questions
Q: What is slippage in forex?
A: Slippage in forex is the difference between the price you requested and the price your order actually executed at. It happens when market prices move between the time you submit an order and when it fills. It can be negative (worse price) or positive (better price).
Q: Is slippage good or bad?
A: It depends on the direction. Negative slippage costs you money (your order fills at a worse price than expected). Positive slippage benefits you (you get a better fill than requested). With ECN brokers in liquid markets, positive slippage occurs regularly.
Q: How do I avoid slippage in forex trading?
A: Use limit orders instead of market orders, trade during high-liquidity sessions (London/New York overlap), avoid trading around major news events, stick to liquid major currency pairs, and set a maximum deviation limit in your trading platform.
Q: Is 10% slippage high?
A: For forex, 10% slippage would be extreme and unusual. Typical forex slippage in normal conditions is 1–5 pips. Slippage expressed as a percentage is more common in crypto, where 1–2% slippage tolerance is standard. If you’re seeing multi-pip slippage regularly in forex, check your broker’s execution model and avoid trading around news.
Q: What is 2% slippage?
A: 2% slippage means your order filled 2% away from your requested price. In crypto this is a common tolerance setting. In forex, it would represent a very large price difference and would typically only occur in highly illiquid conditions or during extreme news events.
Q: When is slippage most likely to occur?
A: Slippage is most likely during major economic data releases (NFP, CPI, central bank announcements), at market open on Mondays after weekend price gaps, during low-liquidity trading hours (deep Asian session), and when trading exotic or minor currency pairs with few market participants.
Q: How does slippage affect prop firm challenges?
A: In a prop firm challenge, your stop-losses can fill at a worse price than set during volatile conditions. This means your actual loss per trade may exceed your modeled risk, pushing you closer to your max daily loss limit than expected. To protect yourself, add a slippage buffer to your position sizing and avoid trading around high-impact news events.
Q: How to calculate slippage?
A: Slippage = Execution price − Requested price. If you ordered at 1.0850 and filled at 1.0854, slippage is +4 pips (negative for a buy). If you filled at 1.0847, slippage is −3 pips (positive for a buy). Always compare your intended price with your actual execution price in your trade log.
The Bottom Line
Slippage in forex is part of trading. You won’t avoid it completely, but you can manage it. Use limit orders, trade during high-liquidity sessions, stay off the charts during major news events, and pick liquid major currency pairs.
If you’re in a prop firm challenge, take slippage seriously. Build it into your position sizing, check your platform’s deviation settings, and make sure your strategy accounts for real-world fills, not just clean backtest results.
Ready to put a disciplined risk approach to the test? Take the ThinkCapital challenge and show what your strategy can do in a funded account evaluation.
Disclaimer
This content is provided for educational purposes only and should not be interpreted as financial or investment advice. Trading in forex, stocks, or any other financial markets involves significant risk. You may lose more than your initial investment, and past performance does not guarantee future results.
Always consider your personal financial situation, level of experience, and risk tolerance before trading. If necessary, consult with a licensed financial advisor or qualified professional. Any strategies, tools, or examples mentioned are for illustration only and do not represent a complete guide.