What is slippage and how it can help us save capital?
Slippage is the difference between the price at which a trader wants to execute his trade and the price at which a broker actually executes that trade. There will always be a certain, albeit very short, time between clicking on the button to open/close a trade (or its execution through stop-loss, take-profit, and other so-called pending orders). How long it takes and what happens during it then determines the size and nature of the slippage.
Negative vs positive slippage
As in the case of swaps, slippage also has a positive version. If your trading position is realized at a more favorable price leading you to earn slightly more, that’s a positive slippage. For the negative, it is just the opposite.
How is slippage affected by the quality of the broker
Forex trading takes place online, that’s why a very important indicator of a broker’s quality is the so-called trading infrastructure. It encapsulates, what technologies the broker uses, how good his business servers and liquidity providers are. In short, how fast the broker is able to get your trading order to the interbank market and how good a counterparty it is able to connect it to. In essence, the better the broker, the less chance of negative slippage (there are exceptions in the form of trading slippage during extreme market fluctuations, but we will omit these for this case).
Letting traders experience positive slips is one of the indicators of the broker's quality
How slips affect a broker model
There are 2 basic divisions of broker models:
The broker based on the STP model is just an intermediary between your order and its match on the real (interbank) market. The quality of an STP broker is determined (in addition to its trading infrastructure) also by its liquidity provider. That is the intermediaries to which the broker sends your orders for pairing. Thus, a broker operating on the STP model cannot intentionally affect the slip. However, the quality of its services can match you with a certain counterparty so quickly that slippage occurs in a really small percentage of cases and sometimes the slippage ends up being positive.
On the other hand, a broker based on the MM model usually does not send your orders to the interbank market and takes up the role of the necessary counterparty himself. Therefore, theoretically, he has the opportunity to determine with what degree of response orders will be processed, and thus whether they will slip or not. Although nowadays Forex brokers are often subject to strict regulations, similar cases have occurred in the past.
Ask your broker for slides, if they are fair, they will be happy to tell you about them. Purple Trading slide statistics can be found here