Jul 07

Online trading affords the buyer with the best possible means of avoiding slippage. Slippage is a pretty simple concept to get your head around but difficult to avoid if you choose to use a traditional brokerage. Any trader who relies on selling and buying quickly in order to avoid sudden changes in stock prices is well aware of the concept. There are various forms of slippage but for the sake of this article I will be keeping it pretty simple and to the point. Understanding slippage in its most simple form can help you make the right decision in what services to use to purchase stocks when trading online.

Online trading Let’s have a look at how slippage works with a simple example. If you are looking through current stock prices and you come across a share that is currently selling for five dollars and you decide to buy one hundred of them (costing five hundred dollars – or so you think). You then approach a brokerage service in order to conduct the transaction for you. The brokerage service gets all of the particulars and collates them in order to submit them to market specialists to make the purchase. This can take a couple of hours. By the time the broker has got all of this information collated and sent off the share may have jumped to six dollars per share. Your initial price of five dollars is now not available to you. For the same volume of shares you will have to pay six hundred dollars.

In this example the slippage is one hundred dollars. That is why trading online using the right methods can help reduce (or avoid) slippage. If you managed to purchase your shares while they were five dollars you would have made one hundred dollars instead of becoming a victim of slippage.

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