Last updated on September 1st, 2022 at 06:47 am
Trading is very complex as we all know it. Even the top veteran traders have to go through a lot of stress and financial issues due to so many new techniques. Making the right trade requires years of experience and knowledge. The main thing you should know about is slippage and that will help you to understand the profit and loss of trading with internet.
Just think of it this way how are assets are sold and bought at a price that sometimes is high and can get low. Like if you want to sell your car and you are getting more price than you thought, it is positive trading. But selling it at a less price can be a loss for you. Trading is just like that with a lot of fluctuations in prices that are not in the control of the market.
So, the whole point is that you know so you can calculate slippage and ensure to avoid it. It is a commonly occurring issue in the market so it can never be stopped. But with the right knowledge and ways of trading you can steer clear of it.
What is Slippage:
Slippage is the difference that you get from the price you saw or think than the price you are getting from the traders. It can be low or high depending on the type of trade you are going through and what is the economical situation right now. A lot of factors in the market will change the prices instantly. Especially, near the announcements, you will see that there are a lot of fluctuations.
So, the people who have made their orders will have to face slippage. Getting shares and investing in stocks is a bright idea but the concept of slippage can occur at any time. Now, you do not want to lose or be a part of negative trading. You have the option of a stop-order limit which ensures that you can only get the order related to the budget. It minimizes the loss and ensures you won’t be on the list of slippage by the traders.
Know about positive and negative Slippage:
There are a lot of debates going on when it comes to positive vs negative slippage. It can be both positive and negative depending on the trade and the time of the trade. As we discussed above that if you are getting the stocks at the same price intended or selling it for more, it is positive slippage. You won’t be at any kind of loss so you are practically growing but on the other side, you can optimize that automatically with algo trading app which makes process and trading easier.
The negative slippage however is the amount you are paying more than intended for the order of your trade. It can happen automatically as well so you cannot control the market over here. Now, if you are selling the stocks at a low price then it is also bad trading because you will be gaining nothing.
There are different times when the slippage can happen a lot and you should avoid it. Firstly, if the company you are investing in is increasing the price of its shares. Moreover, the company could also get a loss and you should get out of that kind of business. Now, there could be a lot of influence on the economic conditions. Like inflation can happen and you need to make sure that you do not do any type of buying and selling at these times.
If there is any news going on in the markets so you should avoid dealing at such times. The prices are dropping and going high like crazy. By doing this, you can ensure good trading habits and stay away from slippage.