Skip to main content
All CollectionsOthers
Understanding Spreads and Slippage: Key Factors in Trading
Understanding Spreads and Slippage: Key Factors in Trading
Updated over a month ago

What are spreads and everything related to them.

Spreads represent the difference between the bid (selling) price and the ask (buying) price of an asset. They are a key cost of trading and can vary depending on market conditions. Below are the primary factors that influence spreads:

Lot Size Usage

  • Our trading system is designed to mirror real market conditions. When you trade larger lot sizes, it may take slightly longer to execute your order, and the price may vary slightly due to limited liquidity at a single price point.


Economic Events & High-Impact News

  • Major economic announcements, such as interest rate decisions, employment reports, or geopolitical events, often increase market volatility. During these periods, spreads may widen as the market adjusts to new information.

Low Liquidity Periods

  • Spreads can increase during times of reduced market activity, such as weekends, holidays, or low-volume trading sessions. This happens because there are fewer buyers and sellers, making it harder to execute trades at tight spreads.


What is Slippage, and How Does it Happen?

Slippage occurs when there is a difference between the price you expect to pay or receive for a trade and the actual price at which the trade is executed. This is a common phenomenon in trading, particularly in fast-moving or illiquid markets, and can result in either a better or worse price than you anticipated.

How & When Slippage Occurs?

Slippage happens due to the time lag between placing an order and its execution, even if that lag is just a fraction of a second. During this brief period, market conditions can change, leading to a different execution price. Here’s why:

  • Market Volatility

During high-volatility periods, such as major news events, prices can change rapidly. This makes it challenging to execute your trade at the exact price you requested.

  • Liquidity Gaps

In low-liquidity environments, there may not be enough buyers or sellers at your desired price. As a result, your order may be filled at the next available price, leading to slippage.

What causes Slippage?

Several factors contribute to slippage, many of which overlap with the factors affecting spreads:

  • High-Impact News and Economic Events

Rapid price movements during major events can outpace the speed of trade execution, resulting in slippage.

  • Low Liquidity Periods

During holidays, weekends, or off-hours trading sessions, fewer market participants can lead to larger price gaps, increasing the likelihood of slippage.

  • Large Lot Sizes

When trading large volumes, the market may not have sufficient liquidity at your desired price. This can cause your order to be partially filled at different price levels, resulting in slippage.

Why Understanding Spreads and Slippage Matters?

Fluctuations in spreads and occurrences of slippage are a normal part of trading in a dynamic market. By understanding these concepts and their causes, you can better anticipate how they may impact your trading strategy.

Note:

At BrightFunded, our priority is providing traders with a reliable experience and seamless trade execution under real market conditions. Slippage is an inherent part of trading and it accurately reflects how financial markets operate. To ensure fairness and transparency, we simulate real market conditions so that traders encounter an environment similar to live trading. As a result, slippage, just like in actual markets, may occasionally occur as part of normal trading dynamics.

Did this answer your question?