Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Title Icon

Intermediate

Have a basic understanding of Forex, but not sure how to
level up? We have got you covered.

Understanding Market Gap and Slippage

The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in. Hence, all Forex traders always keep a close eye on the exchange rate shifts, as that determines their exit and entry points while trading. These price/exchange rate shifts are also known as market gaps and slippage. As a Forex trader, when one is aware of market gaps, it is plausible to make significant profits by predicting the possible short-term price direction. Such market gaps cause slippage, and it is imperative for a trader to know how this can affect their trade. Since slippage marks a difference between the actual and the expected price of a currency, it is a highly risky phenomenon in a volatile market. It becomes impossible to execute orders at the expected price, and the only way to mitigate the risk is by executing trades at the next best price, or by putting a stop limit to the order at a particular price.

What is the market gap in Forex trading?

Gaps, in general, are sharp price breaks, which can also be termed as a difference in the closing price of a currency and the lowered opening price of the currency the next day, involving no trade in between. These gaps are shown as intervals or empty spaces in between the price movements. It either occurs by moving up or pushing down in the Forex market and is termed as a Forex gap or market gap. They primarily occur over the weekend since the Forex market is open 24/7 every day and closes only on the weekends. Such gaps can occur due to various other reasons, like a major news announcement, a significant financial breakthrough, or an economic/global crisis. The breaks in the picture below (also shown by arrows) signify market gaps.

Graphic

Why are market gaps important?

Gaps provide a rough sketch of the ongoing market sentiment. When the gaps rise, it means there are no traders who are willing to sell at that particular level of the gap. This implies a higher currency demand compared to the currency supply in the Forex market. In contrast, when gaps are down, it implies that no traders are eager to buy at that specific level of the gap. Gaps give a signal to the traders to stay out of the market. If there is a gap immediately before a trade’s entry, it is wise to cancel the trade to avoid price breaks.

How to mitigate the impact of gaps

Gap events cannot be avoided, no matter what. It is not a rare situation to see a currency pair close at a particular level and open at a substantially lower level. However, the impacts of gapping can be mitigated. A helpful strategy is to use stop-loss or limit orders as a protection system to minimise the effect.

What is Slippage in Forex?

Slippage in Forex is the difference between the trade’s expected price and the price at which the trade is finally executed. It can occur at any point in time but mainly occur during high volatility times. The Forex market is highly volatile during situations like a big news breakout, economical instability, political crises, or a social issue. The currency value deviates incredibly from its average price. In the Forex market, high volatility also occurs when there is a large order execution but isn’t enough volume to maintain the bid/ask spread. A large order execution occurs when a big buy or sell order gets completed, leading to a significant movement in the Forex market. The market price changes frequently, and slow execution due to any possible reason results in changed prices from when you open the position to when it is actually executed.

How does slippage work?

Once an order is executed, it is sold or purchased at the most favorable price offered by the exchange. This can either produce better results, less promising results, or results equal to the indented execution price. The difference between the final execution price and the intended execution price is called positive slippage, negative slippage, or no slippage, respectively.

  • Positive Slippage: A positive slippage is when the bid price in short trade increases and the ask price in long trade decreases, implying a lesser gap between the price buyer is willing to pay is more than the price seller is willing to accept.
  • Negative Slippage: A negative slippage is when the ask price increases in the long trade and bid price decreases in the short trade, implying a wider gap between the price the seller is willing to accept and the price the buyer is willing to pay.
  • No slippage: As the term suggests, no slippage is the situation when there is no difference between the expected price of a currency and the actual price of the currency.

Slippages occur because of the delay between the trade’s order and the trade’s completion when market prices change quickly.

Final Words

As you are now aware of Forex market gaps and slippages, you also must know that these are unavoidable circumstances. Sometimes, they benefit the trader, and other times, not so much. Blueberry Markets is a Forex trading platform for hassle-free, quick, and efficient foreign exchange transactions, providing you with a transparent and reliable source to trade your favorite currencies!

Recommended Topics

  • What are Volume Indicators

    Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals

  • Shooting Star Candlestick Pattern

    The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.

  • Top Trading Chart Patterns

    Predicting future currency pair prices help in confirming market continuation and reversal signals.

  • What is Slippage in Forex Trading?

    Slippages occur when a currency pair order is executed at a price different from the set market order price.

  • Buy limit vs Sell Stop Orders in Forex

    Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.

  • The Best Time Frame For Forex Trading

    A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.

  • Top Technical Indicators in Forex

    Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations

  • Top Continuation Patterns

    A continuation pattern indicates if the current market trend is going to continue in the same direction or not

  • How to Ace Divergence Trading in Forex

    The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes

  • How To Trade Forex With Japanese Candlesticks?

    A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.

  • Top Momentum Indicators To Analyse Trend Strength

    Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is

  • Types of Moving Averages Every Trader Should Know

    Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.

  • 8 Popular Intraday Trading Indicators

    Intraday Trading Indicators help place successful short-term trade orders in the forex market.

  • What is the Tweezer Candlestick Formation?

    The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)

  • Average Directional Index

    The ADX is a strength indicator that measures how strong or weak a particular market trend is.

  • How to Use Elliott Wave Theory For Forex Trading?

    The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.

  • What are Pivot Points in Forex

    Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.

  • Keltner Channel

    Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.

  • Leading vs Lagging Indicators

    Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.

  • What is Relative Strength Index?

    Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.

  • Wide Ranging Bars

    Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.

  • Harmonic Price Patterns in Forex

    Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.

  • Double tops and bottoms

    Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.

  • Falling and Rising Wedges

    When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.

  • Forex Scalping Strategy

    Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.

  • Symmetrical Triangle Pattern

    Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.

  • Introduction to Technical Analysis in Forex

    Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.

  • Trading breakouts and fakeouts

    Breakout and fakeout trading enable traders to take positions in rising and falling markets.

  • Fundamental Analysis in Forex Trading Explained

    Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.

  • 8 Top Commodity Trading Strategies

    Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.

  • What is a Doji Candlestick?

    The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.

  • Moving Average: The Complete Guide

    Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.

  • What is Volatility Index (VIX) and How Do You Trade It?

    One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.

  • Forex Profit Calculator

    On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.

  • What is a pip in forex?

    When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.

  • Introduction to order types

    Order types in Forex trading determine and control how you enter and exit the market.

  • Using orders to manage risk

    Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.

  • Managing risk in 7 steps

    Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.

  • Bullish and Bearish Flag Patterns

    Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.

Learn Icon

Advanced

Master risk management and
become an expert forex trader.
Move on to the advanced course.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook.

Ads BG

Start a risk free
demo account

News & Analysis

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away