2. There is a quite another tune with Stop orders and S/L orders. The point is that they trigger differently, compares to Limit orders. Here is how it happens. Let’s take the same level on EUR 1.3210, but now you want to place STOP “Sell” order, no matter what you want to do with it – to enter the market or this is Stop Loss “Sell”. The point is, when the market touches your 1.3210 level or lower (for Stop “Buy” it will be 1.3210 or higher), i.e. at least any single trade at 1.3210 or at any price below 1.3210 has passed, your stop has become a market order. This is what I mean with “shifting to market order” term. This is just how stop order works. Now, when market will jump right to 1.3150 level – it means that not just quote but some trade (i.e. tick) will be done with this new level – your order will be executed at market. “At market” means as market order – at best available quote. What risk does this rule of execution put upon you? Very simple. You initially intend to “Sell” at 1.3210, but, in fact, you Sell at 1.3150. This is additional 60 pips loss (in case of S/L) or worse enter for the same 60 pips. That is a risk that Slippage gives. Pipruit: My goodness! And how could I check – did broker execute my orders fairly or not? What if he deceives me? Commander in Pips: I’m not done yet. Yes, this is a third problem that is directly links with order execution procedure. And here you have to remember, what we’ve talked about the quoting system on Forex and, say, on the Futures market. Pipruit: Ok, ok, wait a minute. I think I see. As I remember, on exchange traded markets (and futures are traded on exchange) there is a centralized quoting system, so every tick (i.e. trade) fixes in exchange database. So, I can easily prove that there were no trades between falling from 1.3220 to 1.3150. Forex, as I remember decentralized, so we have no ability to check – did particular price take place on the the market or not, because there is no single source of quoting that exists. Commander in Pips: That’s right. This fact, in turn, leads us to the conclusion that an FX broker can execute you at very unwelcome price if slippage happens and you can’t prove that this price has not happened in the market at all. I’ll tell you more. If market has low liquidity or high volatility, your FX broker can execute you with solid time lag and may give you the worst price that happens during this time. But now you can see the importance of a quoting system, particularly in terms of orders execution. Pipruit: So, you mean all brokers will try to cheat me? Commander in Pips: I can’t agree with that. There are definitely brokers that exist with solid reputations, that place client interests above their own ones. I will not deny this. But you should understand this risk, and the fact that the Broker has enticement to get some pips sponsored by you. If you will see, that the Market has jumped your Limit 1.3210 price from 1.3220 to 1.3150 with just 1 tick – don’t be surprise, that your order will be filled at 1.3210 and not at 1.3150 how it should to be. Your broker could say that there was this price (1.3210) and you can prove nothing opposite. The same is with Stop orders. Don’t be surprise if you will get fill not even at 1.3150 but at 1.3145 for example. By the way, stop orders, even in a calm market could be filled with 2-5 pips slippage. I see that very often. Pipruit: Thanks, Sir. Forewarned is forearmed. Commander in Pips: Exactly. Besides, now you know how are important all parts in FX puzzle – quoting system, brokers, their reputation, slippage and order execution. P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.