When the investors perform the trade in Forex, it is done through the security companies and the like. The security companies and banks always mediate between follow investors. When we way say mediate, although it is not the image of like a mediator, but when the investors issue an order, they pass through such security companies then the order will be issued to the interbank market.
In this way, until the order passes through the Interbank, since it will pass through the system of security companies, at any rate there is a time difference between the times an order was issued until the contract. This time difference, that occur from the order price and contract price is called Slippage. The bigger the slippage, since this means the contract will be made at the price that is far from the price when the order was issued, there are times this results in a big loss.
As the factors to determine the slippage, it has something to do whether the security company or Forex company system server is strong or week. The security companies provide the trading system to the investors, use that system to carry out trade. If the server processing capacity is week, even if it receives the order, it will take time to enforce it. When it accepts a significant volume of order at one time, it cannot process all the orders, as a result, the longer it will take, slippage occurs.
Also, when you manually issued an order, or in case of using the EA, slippage occurs all the same. Although the EA automatically perform the trade, even so if would not pass through such security companies, the order cannot be issued, slippage occurs no matter what. When the slippage is bigger, has a big difference to the order price, it will end up in a big loss. In order to avoid that, you have to trade using the security company and Forex company that uses a server with huge processing capacity as much as possible.
However, you can determine this slippage acceptance range. Even in the trading system of performing manual trade, even in EA, it has been made to be able to specify the acceptance range. When specified, it will not commit in the slippage that exceeds the acceptance range.
In case of using the EA, you would have to install the MT4 in the computer. Although normally you install the MT4 using the VPS, this VPS also affects the slippage. Although the flow up to the contract will be from the VPS by the Forex company server, if the VPS is domestic, but the server is in overseas, there is a difference to the installation location of the two, the slippage will occur. However, if the Forex company is domestic, there is no problem.
The other thing that should be careful about in using the EA is the VPS spec. There is variety in the VPS, from reasonably low to high spec, it can be determined by how many EA can be operated to one VPC from that spec. If you run several EA in a VPS with low spec, the VPS processing capacity will not be able to keep up and the EA actions will get heavy. There may be no problem at all if it’s just heavy, but if it exceed the processing capacity, sometimes the EA will not run. If it won’t run, sometimes it will just expand the loss. Caution is necessary.
It’s better to look at that Forex company’s contract rate, whether slippage is more likely to occur or not. Since many Forex companies and security companies announced the contract rate, if the numerical price is close to 100%, slippage is less likely to occur. However, since the company will announce the price, there are times that when actually trading, the slippage is so big that it’s useless, the contract rate should be considered to be about one of the standard.
Just like slippage, spread is also a profit determining factor of an investor.
Thus, even if you trade using the EA, you must perform the trade checking these two, whether slippage will occur, and whether how much the spread has become. Sometimes the slippage expands, such as when the market moves violently during index announcements and transaction value of the beginning of the week across the weekends. At times like these, you need to be careful when using the EA.
When you perform like short-term scalping in an environment where too much slippage occurs, there are times loss also overlaps, since there is also a thing that goes, the more you trade the more you lose, trading logic of EA such as short-term and long-term trade is also important while thinking of slippage. In the long-term trade, when you aim for big profit, the less slippage will not have an effect to your profit. As it becomes short-term trade, slippage becomes crucial.