What Causes Slippage in Forex?
A deep dive into the specific causes of forex slippage -- liquidity gaps, news volatility, order size, and broker execution technology -- beyond the basics.
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This cluster’s companion article covers what slippage actually is and how it differs from a requote; this one goes further into the specific, practical causes behind it — the conditions and mechanics that determine whether a given trade is likely to fill close to its expected price or noticeably away from it. Understanding these causes individually is useful because they don’t all behave the same way, and recognizing which one is in play helps explain why slippage shows up when it does.
Liquidity gaps
Every price level in the market has a certain amount of buying or selling interest sitting behind it, ready to trade. When that depth is thin — fewer participants willing to trade at or near the current price — an order can “use up” the available interest at one price level and have to move on to the next one to get fully filled, which is itself a form of slippage. Liquidity gaps widen naturally during quieter trading periods, such as very early in the trading week, late in a session, or around holidays when fewer institutional participants are active. The thinner the liquidity behind a price, the more an order of any given size can move the effective fill price away from what was quoted a moment earlier.
News volatility
Scheduled economic releases and unexpected headlines can move prices very quickly, sometimes within a fraction of a second of the news hitting the wires. In that short window, the price can change meaningfully between when you submit an order and when it’s actually processed and filled, simply because the market itself is repricing in real time. This is one of the most predictable causes of slippage, in the sense that you generally know in advance when major news is scheduled, even though you can’t know in advance which direction or how far price will move once it lands.
Order size
Larger orders are more likely to experience slippage than smaller ones, for a straightforward reason: a big order needs more liquidity to fill completely at a single price, and if that much interest isn’t sitting right at the current price, part of the order has to fill at the next price level, and the next, until the whole order is complete. This is sometimes called market impact, and it means the same market conditions can produce negligible slippage for a small retail-sized order while producing something more noticeable for a much larger one trying to fill in the same moment.
Broker execution technology
How a broker’s systems are built materially affects how much slippage its clients actually experience, separate from pure market conditions. Server infrastructure, how quickly orders are routed to liquidity providers, how many liquidity sources a broker can draw on, and how its systems handle a sudden spike in order volume during a busy moment all shape the real-world slippage a trader sees. Two brokers facing the identical market conditions at the identical moment can produce measurably different fills, purely because of differences in their execution pipeline. This is also why slippage is worth treating as a genuine execution-quality factor, not simply an unavoidable fact of markets that’s the same everywhere.
How these causes interact
These factors compound rather than operate in isolation. A large order placed during thin liquidity around a major news release, on a broker with slower execution technology, is about as exposed to slippage as a trade can get. The same order, placed during deep, liquid trading hours in calm conditions on a broker with fast, well-resourced execution, is far less likely to see any meaningful slippage at all. Recognizing which of these causes is present for a given trade — timing, size, and the news calendar are all things you can check yourself — is a more useful habit than treating slippage as random and unpredictable.
What this means in practice
You can’t eliminate any of these causes, since thin liquidity, volatile news, and the need to size positions appropriately are all genuine features of how real markets work. What you can do is recognize when several of them are likely to line up at once, and factor execution technology into how you evaluate a broker in the first place. Comparing how different brokers’ execution infrastructure and typical slippage are described side by side, rather than judging on spreads alone, is one of the things a broker comparison tool can help with before you decide where to trade.