Spot Market & Slippage: In the world of foreign exchange trading, what is a spot market, you may ask? Spot refers to the actual transactions (such as currency exchanges) between two parties, rather than a quoted price, as would be the case in a regular market. This allows you to do all of your investing/tradings in the comfort of your own home and eliminates the hassles of traveling to and from a broker’s office. So now that you know what is a spot market in force, what are you waiting for? Start making money!
Slippage in forex is something that occurs very seldom, but it can happen. This means that when you purchase a currency, you loan it out to somebody else, and they end up spending it before you get it back. The value of currency generally goes up and down about other currencies. So when you lend currency overseas, for example, you are essentially loaning money to the person you gave it to. They pay you interest which then adds up to your capital and causes you to pay interest.
If you don’t pay your slippage, you will have a negative tax impact on your income, which will hurt your overall financial situation. You can get penalized with a fine and even jail time for not paying your slippage in forex in some countries. This does make it imperative that you know how much you can afford to pay every month before signing on the dotted line. For many traders, this is just too much of a risk, and so they don’t go over the top and default on their loans. Others take the smaller calculated risks and end up losing their funds. Therefore, it gets to be imperative that you keep track of your slippage in forex and only invest what you can truly afford to lose.
What is a Spot Market?
A spot market in terms of forex represents the market that deals with the financial instruments’ real-time price. Here, prices remain settled on the spot at current market pricing, apposing to forward pricing.
What is Slippage and Why It Occurs?
Slippage is a name given to a situation where the markets gaps over the prices. It represents a condition when the available liquidity gets exhausted at a given price. Such market gaps usually occur when the market is pacing fast, and prices jump significantly through pips without allowing trade at prices in between.