Slippage refers to the difference between the expected price of a trade and the actual executed price. This phenomenon typically occurs during periods of high volatility or when market orders are executed in fast-moving markets. For instance, if a trader places a market order to buy a currency pair at $1.2000, but the order is executed at $1.2010 due to rapid price changes, the trader experiences slippage of 10 pips. Generally, slippage can be either positive or negative, depending on whether the execution price is better or worse than anticipated. Understanding slippage is crucial for traders as it can affect the overall trading strategy and risk management practices.
