In this article, we will explain two meanings of deviation in forex: general and narrow.
This article will analyze trading moments when the executed price is not the same as the expected execution price when we have a price deviation in MT4 or MT5. This can mean you get an unfair execution for your trade without knowing what happened to the original price. Forex deviation means we can define it in two ways: in the general sense, we are talking about standard deviation in forex, and in the narrow sense, we will speak of slippage.
What is the deviation in forex?
Generally, the deviation in forex measures currency price volatility and market activity. Standard deviation in forex measures how widely price values are dispersed from the mean or average. High deviation means closing prices are falling far away from an established price tell. Low deviation means that closing prices are falling near a selected price mean.
We can explain standard deviation as a market activity because when standard deviation increases, market activity usually increases too.
However, traders often use the term deviation when pointing out existing slippage.
In the narrow sense, 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. For example, slippage is a standard error that occurs during the volatility market and wide spreads, and trades are filled at a price different from the requested price.
Futures and forex are different financial instruments, but their trade ways are pretty 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 higher the value from its mean, the greater its standard deviation.
In Forex, the deviation is used to measure the volatility. Traders use deviation to put the current action price context 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 market’s moving between the order’s playing time and the fulfillment time.
Please always check the deviation for the quoted price, “off quotes” MT4 error.
Slippage example:
A broker quotes EURUSD as follows:
Bid 1.3000
Ask 1.3001
Upon receiving the quote above in his terminal, the trader 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 must check whether the client’s latest order can be covered 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. The live price can change from when the broker receives the original quote to when he can fill the order. If our trade is executed at 1.3002, we have one 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 individuals enter an order for market execution, they commit to buying/selling at the market’s current level. 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 many orders are not executed because they will be outside 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 choose whether they want to go forward with the new price.
What does deviation mean in Metatrader?
Deviation in Metatrader represents market volatility measurement, how widely price values are dispersed from the mean or average. In Metatrader, the deviation is calculated using a standard deviation with a default period of 20, and if the indicator is high, the market is volatile.
As we can see on the chart below, the standard deviation on the MetaTrader chart can explain the market activity. If the market activity grows, the standard deviation line will grow too, and the market will be active. Contrary, when the standard deviation line decrease, market activity decreases too. During Asian sessions, we usually see a flat EURUSD standard deviation because the market has moderate or low activity.
What does deviation mean in MT4?
In MT4, the deviation is presented as price volatility measurement using MT4 Standard deviation indicator. This indicator is an oscillator that measures how much price is dispersed from the mean or average. The zero value presents no volatility.
Please standard deviation indicator forex MT4
Below is a presented MT4 chart. If you want to add a standard deviation indicator to the chart, you need to go to” Indicators,” then “Trend,” and finally choose “Standard Deviation.”
What is a deviation in MT5?
In MT5, the deviation is presented as price volatility measurement MT5 Standard deviation indicator that measures the size of recent price moves of an asset. The higher the value of the indicator, the wider the spread.
MT5 platforms are multi-assets trading platforms that cover noncentralized and centralized markets, including futures, stocks, and even trading instruments related to Forex, like Forex robots. MetaTrader is one trading software that traders use as their Forex platform. If a price slippage occurs in a trading platform, it may be called a DEVIATION IN METATRADER. Common types of MetaTrader platforms are MT4 and MT5. The trader may use options on the software to set the deviation in the slippage by themselves. These platforms incorporate tools and techniques used in the Forex and controls for setting parameters.
As the same as MT4, deviation in MT5 can be presented, and during high volatility, we can see a few pips slippage, the difference between the expected price of a trade and the price at which the trade is executed. Even though many articles were written about the advantage of the MT5 platforms in low slippage, our experience didn’t see any difference when we compared MT4 and MT5 slippage.
Traders most commonly use MT5 due to the flexibility of financial instruments and the presence of Forex robots. Users of the MT5 platform can limit the maximum slippage amount in their accounts by setting and choosing the maximum deviation. The deviation limit for the total amount can also be arranged for pending orders, market orders, and orders executed by the signal providers present in the MQL5 community. When the trader sets the maximum deviation amount, their orders will not run when slippage exceeds the amount charged.
Deviation and brokers’ fraud
Slippage matters because the trader can end up receiving unfair prices of execution. The broker can make a profit with the trader’s money, which will also be risk-free. If the broker handles orders differently following the market moving in favor of the trader or against him, it can be called asymmetric slippage. This is an illegal practice and is termed fraud.
Checking for slippages should always be done on life, not on a demo account. The average of all slippages should be calculated over several orders for trade. If there are arbitrary movements, the number of negative and positive slippages should be the same. If the number of negatives increases, there is an excellent chance that something is incorrect. Although testing for slippage costs some money, it might be an investment for future higher-priced orders.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
