Positive slippage

What is Positive slippage in forex and CFD trading

Positive slippage is the favorable difference between the price a trader requested for an order and the price at which the order was actually executed, resulting in a better-than-expected entry or exit point. It occurs when market prices move quickly in the trader’s favor between the time the order is placed and the time it is executed. Positive slippage matters for real trading decisions because it directly improves the trade’s profitability, lowering the All in cost or increasing the final PnL compared to the expected outcome. A trader can verify Positive slippage by comparing the Requested Price to the Filled Price in the trade history, where the filled price is more favorable, and measure it in pips. To learn more about how orders are processed, explore order execution, or explore other trading terms in our forex glossary.

Key facts about Positive slippage

• Outcome: Positive slippage always results in a financial benefit for the trader, as the position is opened or closed at a superior price.
• Order Type: It occurs most frequently on Limit orders (Buy Limit, Sell Limit) placed away from the current market price, or Take Profit orders that are triggered during fast-moving markets.
• Market Condition: It is usually observed during periods of high liquidity, where price action is rapid, or when the market price gaps favorably past a pending order.
• Calculation: Positive Slippage = Filled Price – Requested Price (for a buy order), resulting in a positive value.
• Broker Model: Brokers operating a No Dealing Desk (NDD) or ECN model are more likely to pass Positive slippage onto the client, as they seek the best available price from liquidity providers.
• Measurement Unit: The magnitude of Positive slippage is measured in pips or ticks and can range from a fraction of a pip to several pips, depending on volatility.

How Positive slippage works in forex and CFD trading

Positive slippage works when the market price accelerates past the requested price of a pending order, but the execution system still executes the order at the next available and more favorable price.

The process involves these sequential steps:

1. Pending Order Setup: A trader places a Buy Limit order at a price P_req, which is below the current market price, aiming for a favorable entry.
2. Market Price Fall: A sudden market movement, perhaps due to unexpected news, drives the price down towards P_req.
3. Price Gap (Favorable): The market price gaps or moves rapidly past the requested price P_req, with the next available price from the LP being P_fill, which is even lower than P_req.
4. Order Execution: The broker’s NDD system, seeking the best available price, executes the Buy Limit order at the more favorable price, P_fill.
5. Result: Since P_fill < P_req, the trader receives Positive slippage, resulting in an immediate unrealized profit compared to the expected entry.

Example of Positive slippage with a real trade

This example shows how Positive slippage affects the execution of a Take Profit order on EUR/USD.

• Instrument: EUR/USD (short position)
• Position size: 1 standard lot (100,000 units)
• Pip Value: $10/pip

Trade Parameters:

• Entry Price (Sell): 1.09500
• Requested Take Profit Price: 1.09000 (Intended Profit 50.0 pips)

Execution Scenario (Price Spike):

• Market Price moves rapidly towards the Take Profit level.
• Filled Take Profit Price: 1.08980 (The price jumped favorably past the requested level)
• Difference (Positive Slippage): 1.09000 – 1.08980 = 0.00020 or 2.0 pips

Impact Calculation:

• Intended Profit: 50.0 pips × $10 = $500.00
• Actual Profit: 52.0 pips × $10 = $520.00

Result: The Positive slippage resulted in an additional profit of $20.00 for the trade.

How Positive slippage affects your cost and risk

Positive slippage affects cost and risk by effectively reducing the cost of entry for limit orders or increasing the profit realised at exit, acting as an unplanned benefit.

Positive slippage compared with related concepts

Positive slippage vs Negative slippage

Positive slippage is when an order is executed at a more favorable price than requested, benefiting the trader, whereas Negative slippage is execution at a less favorable price, which increases the transaction cost or loss.

Positive slippage vs Requote

Positive slippage is a direct, beneficial execution at a superior price, typically provided by NDD/ECN brokers, while a Requote is a request by a Dealing Desk broker to accept a new, usually worse, price, resulting in a delayed and often unfavorable trade.

Broker differences in Positive slippage across the industry

The handling of Positive slippage is a key indicator of a broker’s business model; ECN brokers pass it on, while Dealing Desk brokers may capture or limit it.

How to verify Positive slippage on your trading platform

To mechanically verify an instance of Positive slippage using MetaTrader 5 (MT5), follow these steps:

1. Identify Price Target and Order Type: Open MT5 and identify a target price for a Buy Limit order on EUR/USD, ensuring the current price is above your limit.
2. Place Limit Order: Place the Buy Limit order at your chosen Requested Price.
3. Wait for Market Event: Wait for a market event (e.g., unexpected news release) that causes the price to fall rapidly.
4. Access History: Once the order is filled, navigate to the History tab within the Toolbox window.
5. Review Order Details: Double-click the filled order to open the Order Details window.
6. Compare Prices: Compare the Type field, which shows the Requested Price, with the Price field, which shows the Filled Price.
7. Calculate Positive Slippage: For a Buy order, if Filled Price < Requested Price, the difference is Positive slippage.

Sanity check: The executed price on the History tab for your Limit order should be visibly better (lower for a Buy, higher for a Sell) than the price you originally set in the ticket.