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Are you a trader who is permanently in loss? Perhaps you need to work on the psychology of trading, setting of your Money-Management, or a good trading strategy.
Or not? What if none of this is true in your case? Could your trading results be much better now and you are just losing your hard-earned cash?
How is this even possible? What is the problem? This will be the topic of today’s article.
Has it ever happened to you that the broker deepened your loss compared to the one which was originally set as Stop-Loss?
Do you know why?
The explanation is very simple. The price you had your Stop-Loss set on was impossible for the broker to execute the order at (due to no counterparty – liquidity), thus your trade was really closed on a different price, which is worse for you. This is called slippage and it’s a common part of trading.
Actually, when a broker guarantees an exact execution of your Stop-Loss settings, be aware! You are most probably not trading on the real market and your broker is actually your counterparty! On a real market, the price cannot possibly be guaranteed. Luckily, most brokers do not guarantee the exact Stop-Loss execution.
Let’s get back to the situation described above and look at an example. Let’s say we open a buy trade on price 1.24580 with Take-Profit at 1.24880 and Stop-Loss at 1.24380. The trade is not really turning in our favor and the price begins to drop. It keeps on decreasing until it activates out Stop-Loss at 1.24880. The trade ends with a loss. Then we look at the history of trades and we are in shock. We discover that our buy trade was really closed at 1.24369. Yes, 11 points‘ worth of difference. We are 11 more points in loss.
The problem took place at a time when the broker put an order to close your trade, however, until the request has been completed, the liquidity has changed to 1.24369. Simply put, even though the speed of execution of our trade was ok, the market movement was faster. Slippage during the closing of buy trades was then 11 points. A phenomenon, which you probably know and experience often. Most trades which end on a Stop-Loss are actually closed at a worse price than the originally set Stop-Loss.
What happens if our example ends differently?
Let’s go back in time and set our trade again. We have a buy trade on price 1.24580 with Take-Profit at 1.24880 and Stop-Loss at 1.24380. The trade is going really well and the market price is meeting our expectations. It doesn’t take long and our Take-Profit is activated and we are excited about our profit. Then we check the trade history and we see that all your trades were closed at exactly 1.24880. Everything is okay because this was set as Take-Profit. Yes, you probably know what I am talking about. All your trades which were closed at Take-Profit were ended exactly at the point you had your Take-Profit set at.
Is everything all right? Of course not! What is the problem?
The problem is that, in the majority of executed trades which end in a loss, your broker reveals the true market execution of the trades. This means more loss for you. But when it comes to profitable trades, only the things which are inevitable are revealed.
Let’s look at the example for the last time and talk about how things should be done the right way.
We have a buy trade on price 1.24580 with Take-Profit at 1.24880 and Stop-Loss at 1.24380. The trade is going really well and the market price is meeting our expectations. It doesn’t take long and our Take-Profit is activated and we are excited about our profit. Then we check the trade history and we see that the price the trade was closed at is 1.24895 – 15 points more than the originally set Take-Profit. Reason? The same as with Stop-Loss. The problem was that the broker put an order to close your trade in time, however, until the request has been completed, the liquidity has changed to 1.24895.
What does this mean to us? Simply put, we gained 15 points worth‘ of profit than we expected. Not only this happens when the trade is closed at the set Take-Profit, it happens every time the trade is closed in profit. The broker simply doesn’t reveal the positive market change and the difference ends up in their pocket! This is called positive slippage. We should be seeing this more often, thus receive higher profit than originally planned.
Reality?
The vast majority of brokers will not reveal these profits and keeps them! The solution is quite simple. You have to trade with a broker that discloses all the information to you including positive slippages.
How can you recognize that? Open a real trading account and then open x various trades with a Take-Profit. Then just wait and see if the prices are always the same as the originally set Take-Profits. If yes, the broker is not revealing the positive slippage! And this is a big problem because you might be losing a lot of money.
Keep in mind that slippage only occurs on real trading accounts which fall under the real market execution. The test above cannot be run on a demo account. It always has to be a real account. At the same time, some of your trades will be closed at the exact Take-Profit (the broker simply managed to close the trade exactly). However, it must never be a rule! If it is, then you are in trouble!
What’s the outcome of all this? For a long-term profitable and successful trading, we need a fair broker which clearly discloses all the information both positive and negative.
Would you like a broker who reveals positive slippage? Try Purple Trading , a broker with excellent trade execution and positive slippage!
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
For more information on the risks of trading, click here .
P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.
