What Does Deviation (Slippage) Mean?
In this article, we will analyze moments in trading when the executed price is not as same as the expected execution price when we have price deviation in MT4 or MT5. This can mean that you get an unfair execution for your trade without having a clue of what happened to the original price.
What does deviation mean in MT4?
Price deviation or slippage refers to the price difference between the expected price of a trade and the price at which the trade is executed. Slippage is a common error that occurs when during the volatility market and wide spreads and then trades are filled at a price that is different from the requested price.
Futures and forex are two different instruments in finance, but their trade ways are quite similar. Standard deviation is a popular technique used in trading for forex. An experienced individual knows that a sudden volatility spike can close out profitable future trades as losses. This is where the standard deviation comes in. It helps to establish the currency pair’s volatility before placing the order. The deviation is derived from statistics to understand a data set’s variance from the mean value. The further the value is from its mean, greater is its standard deviation.
In Forex, the deviation is used to measure the volatility. Traders use deviation to put in context the current action price by determining a periodic price’s closing relation to a mean or average value. This deviation is also known as slippage. In simple terms, slippage refers to the moving of the market between the order’s playing time and the order’s fulfillment time.
A broker quotes EURUSD as follows:
The trader upon receiving the quote above in his terminal enters the order to purchase at 1.3001. Then the order is sent to a broker across a network. When the broker receives the order, he has to check whether the latest order can be covered by the client with sufficient funds. This essentially means inspecting any free margins of the client after determining all other open positions. There is a delay created from the transfer of communication to the transfer of data. It means that live price can have changed from the moment broker receives the original quote to the moment he can fill the order. If our trade is executed at 1.3002, we have 1 pip slippage. The difference between the fill and the quoted price is called slippage.
DEALING WITH SLIPPAGE
There are ways present to deal with slippage. When an individual enters an order for market execution, they are committing to buying/selling at the current level of the market. This means that their order will get fulfilled regardless of the slippage amount that can take place. Sometimes, brokers can allow to set up a limit for slippage when an order is placed. This is called the maximum deviation or point limit from the quoted price. However, a problem arises when where a lot of orders would not get executed at times just because they will be outside of the limit for slippage. Brokers can also send re-quotes where they send the new price of the market when it has moved. Traders can have the choice of whether they want to go forward with the new price or not.
What is the deviation in MT5?
MT5 platforms are trading platforms for multi assets that covers both noncentralized and centralized markets which can include futures, stocks, and even trading instruments related to Forex like Forex robots. The MetaTrader is one trading software which traders use as their Forex platform. If a price slippage occurs in a trading platform, it may be called as a DEVIATION IN METATRADER. Common types of MetaTrader platforms are MT4 and MT5. The trader may use options present on the software itself to set the deviation in the slippage by themselves. These platforms incorporate tools and techniques used in the Forex along with controls for setting parameters.
As the same as MT4, deviation in MT5 can be presented, and during high volatility, we can see few pips slippage, the difference between the expected price of a trade and the price at which the trade is executed. Even a lot of articles written about the advantage of the MT5 platforms in low slippage, our experience didn’t see any difference when we compare MT4 and MT5 slippage.
MT5 is most commonly used by traders due to the flexibility of financial instruments and the presence of Forex robots. Users of the MT5 platform can set the limit for the maximum amount of slippage in their account by setting and choosing the maximum deviation. The deviation limit for maximum amount can also be set for pending orders, market orders, and also for orders executed by the signal providers present in the MQL5 community. When the trader sets the maximum deviation amount, their orders will not get executed when the amount for slippage is bigger than the amount they have set.
DETECTING FRAUDS FROM BROKERS
Slippage matters because the trader can end up receiving unfair prices of execution. The broker can be able to make a profit with the trader’s money which will also be risk-free. If the broker is handling orders differently in accordance with the market moving in favor of the trader or against him, it can be called as asymmetric slippage. This is an illegal practice and is termed as a fraud.
Checking for slippages should always be carried out on life and not a demo account. The average of all slippages should be calculated over a number of orders for trade. If there are arbitrary movements, then the number of negative and positive slippages should be the same. If the number of negatives is more, then there is a very good chance that something is not right. Although testing for slippage does cost some money, it might be termed as an investment for future higher priced orders. This ensures your broker is legitimate and is working with you ethically.
Last several years, forex brokers are much better and have low slippage than in the past.