Understanding Market Gaps and Slippage

Understanding Market Gaps and Slippage

When a Forex trader is aware of market gaps, forecasting the likely short-term price direction might result in big winnings. Slippage occurs as a result of such market gaps, and a trader must understand how this might affect their deal. Slippage is a very dangerous phenomenon in a turbulent market since it is a gap between the real and projected price of a currency. It becomes difficult to execute orders at the predicted price, and the only method to reduce risk is to execute transactions at the next best price or to set a stop limit on an order at a certain price.

What is the market gap?

Gaps are sudden price breaks, which may also be defined as the gap between a currency's closing price and its dropped starting price the following day, with no transaction in between. Intervals or empty spaces between price changes are used to represent these gaps. A Forex gap, also known as a market gap, happens when prices go up or down in the Forex market. They mostly happen on weekends since the Forex market is open 24 hours a day, seven days a week and only shuts on weekends. Other factors, such as a large news announcement, a substantial financial breakthrough, or an economic/global catastrophe, might cause such gaps.

What is the significance of market gaps?

Gaps give you a general idea of how the market is feeling right now. When the gaps widen, it indicates that no traders are prepared to sell at that specific gap level. In the Forex market, this means that currency demand is stronger than currency supply. When gaps are down, on the other hand, it means that no traders are keen to purchase at that particular level of the gap.

Gaps suggest to traders that they should remain out of the market. It's best to cancel a deal if there's a gap just before it goes live to prevent price breaks.

What is Forex Slippage?

The discrepancy between the deal's projected price and the price at which the trade is eventually completed is known as slippage in Forex. It may happen at any moment, although it is more common during periods of extreme volatility. When there is a huge news break, economic instability, political problems, or a social issue, the Forex market becomes very volatile. The value of the currency varies greatly from its average price. High volatility may also arise in the Forex market when there is a significant order execution but insufficient volume to sustain the bid/ask spread. A large order execution happens when a large purchase or sell order is fulfilled, causing a major change in the online Forex trading.

What is the significance of slippage?

Once an order is completed, it is sold or acquired at the exchange's most advantageous price. This may result in better, less promising, or outcomes that are equivalent to the planned execution costs. Positive slippage, negative slippage, or no slippage refers to the difference between the final execution price and the anticipated execution price. When market prices move fast, slippages occur due to a delay between the trade's order and the trade's execution.

Wrapping Up

Now that you are aware of online Forex trading gaps and slippages, you should also be aware that they're inescapable. They may be beneficial to the trader at times, but not always. Motilal Oswal allows you to trade your favourite currencies in a hassle-free, rapid, and efficient manner.

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