When you’re investing in the stock market, it’s important to be aware of something called “slippage.” This is when you don’t get the price that you were expecting because someone else beat you to it. In this blog post, we’ll discuss what slippage is, how to avoid it, and some tips for increasing your profits.
What Is Slippage?
Slippage happens when you try to buy or sell a security at a price that’s different from the current market price. For example, let’s say you place an order to buy 100 shares of Company A at $20 per share. If the stock is trading at $21 per share when your order goes through, you’ll end up buying the stock at $21 per share, even though you were expecting to pay $20 per share.
The same thing can happen when you sell a security. Let’s say that you have 100 shares of Company A that you bought for $20 per share. If the stock is trading at $19 per share, you’ll sell the stock for $19 per share, even though you were expecting to sell it for $20 per share.
This is a particular problem with crypto investments because the value of cryptocurrencies fluctuates a lot. So, you may schedule an order or a sale and then find that your profits are significantly lower when it actually executes. In some cases, you could even lose money.
How Can You Avoid It And Maximize Profits?
There are a few ways that you can avoid slippage and maximize your profits:
-Know the current market price: This is the first step in avoiding slippage. If you know what the stock is currently trading at, you’ll be less likely to overpay or undersell. Doing more research can help you predict prices more accurately and avoid any surprises.
-Over-the-counter trading: When you trade over-the-counter (OTC), you’re dealing with a human trader instead of an automated system. You don’t use an exchange, you conduct trades directly with somebody else. So, if you’re using a crypto OTC trading desk, the price that you agreed upon is the price that you will trade at, no matter what happens to market prices in the meantime.
-Use limit orders: A limit order is an order to buy or sell a security at a specific price. For example, you could place a limit order to buy Company A shares at $21 per share, even if they’re currently trading at $22 per share. This will help you avoid slippage by ensuring that your order is only executed at the price you want.
-Use stop orders: A stop order is an order to buy or sell a security when the price reaches a certain level. For example, you could place a stop order to sell Company A shares at $19 per share, meaning that you’ll sell them automatically if the stock falls below that price. Technology has improved investing in so many ways and there are now many tools you can use to automate trades and avoid slippage.
These simple changes can help you avoid slippage and increase your profits overnight!