Slippage is the difference between the price a trader expects for an order and the price at which the order is actually executed. It can be negative or positive and becomes especially important when markets move quickly or liquidity is limited.
Key takeaways
- Slippage is an execution difference, not a charting error.
- It can occur on entries, exits and stop orders.
- Fast markets, low liquidity and large orders can increase slippage.
- A stop-loss defines an exit trigger or instruction but does not guarantee an exact fill price.
- Spread and slippage are related execution costs, but they are not the same thing.
A simple slippage example
A trader sends a market order expecting to buy at $100.00, but the best available execution is $100.08. The eight-cent difference is negative slippage for that buyer. If the order instead fills at $99.96, that would be positive slippage.
Why does slippage happen?
Orders need a counterparty. If the available quantity at the expected price disappears before an order arrives, the trade may execute at the next available price. This is more likely when prices are changing rapidly or when there is limited depth in the market.
Why can economic news increase slippage?
Scheduled releases such as CPI, NFP or central-bank decisions can cause orders to be added, cancelled and executed extremely quickly. Quotes can move before a trader’s order reaches the market, and spreads can widen at the same time.
That is why a charted level does not guarantee that a trade can always be executed exactly at that level.
Market orders and limit orders
A market order prioritizes execution over exact price. It attempts to trade against the best available liquidity, which means the final price can differ from the quote seen a moment earlier.
A limit order prioritizes price by defining the worst acceptable price, but the trade may not fill at all if the market does not provide sufficient liquidity at that level.
Can stop-loss orders slip?
Yes. Depending on the order type and broker, a stop can become an executable order once its trigger is reached. If price gaps or moves through available liquidity, the resulting fill can be worse than the stop level. This is one reason risk cannot be reduced to a line drawn on a chart.
Spread vs slippage
The bid-ask spread is the difference between the current buying and selling quotes. Slippage is the difference between expected and actual execution. A trader can experience both in the same trade.
How can traders think about slippage risk?
There is no way to eliminate all execution risk. Traders can understand when liquidity is likely to be thinner, avoid assuming perfect fills in historical analysis, account for realistic transaction costs and size positions so an imperfect execution does not create catastrophic account damage.
Bottom line
Slippage is part of real-world trading. Any performance analysis that assumes every order fills perfectly at the desired price should be interpreted carefully.
Read What Is Market Liquidity? and What Is Leverage?.
This article is educational only and is not financial advice. Actual execution depends on market and broker conditions.