Slippage

Slippage is the difference between the price you expected to trade at and the price you actually got. If you click buy when the screen shows $50.00 and your order fills at $50.06, you suffered 6 cents of slippage. It is one of the hidden costs of trading: it never appears as a line on your statement, but over hundreds of trades it can be larger than commissions.

What causes slippage#

Walking the order book#

If your order is larger than the size available at the best price, the rest fills at the next prices. See The Order Book and Market Depth.

Price moving during the order#

In fast markets, the price can change between the moment you decide and the moment your order reaches the market, even if it is only milliseconds. News releases and the market open are prime times for this.

Stop orders in fast markets#

A stop order becomes a market order when triggered. If the price is falling quickly, the next available bid can be well below your stop price.

Gaps#

If a market closes at $50 and opens at $46 after bad news, a stop at $48 fills near $46. No order type can trade at prices the market skipped.

Slippage is not always negative#

Slippage can work in your favour. A market buy can fill below the quoted ask if a better offer appears first. In practice, over many trades, slippage averages out as a cost for most traders, because it tends to be worst when markets move quickly and against you.

How to measure slippage#

For each trade, record the price you intended (the quote at the moment you sent the order, or your stop price) and the actual fill.

Slippage per share = Fill price − Expected price (for buys)

For sells, reverse it. Track slippage in your Trading Journal as a percentage of price or in R multiples. Professionals measure it carefully as part of execution quality; see Slippage Analysis and Implementation Shortfall.

How to reduce slippage#

1. Use limit orders where speed is not critical. A limit order cannot fill worse than your price. See Limit Orders.
2. Use marketable limit orders when you need to get in now: a limit slightly beyond the current quote fills immediately in normal conditions but caps how far you can be filled.
3. Trade liquid markets and liquid hours. Tight spreads and deep books leave less room for slippage. See Liquidity.
4. Size orders relative to available liquidity. Split large orders or trade smaller in thin markets.
5. Avoid entering just before major news unless your strategy is built for it.
6. Consider stop limit orders where a bad fill would be worse than no fill, accepting the risk of not getting out. See Stop-Limit Orders.
7. Hold fewer positions through events that can gap the price, such as earnings, if gap risk would exceed your plan.

Slippage in backtests#

Strategies tested on historical data often assume fills at exact prices. Real trading adds spread and slippage to every trade. Strategies with small average profits per trade can turn from winners to losers once realistic slippage is included. Always add a conservative slippage estimate when testing. See Costs and Slippage in Backtests.

Slippage in other markets#

• Forex and CFDs: brokers may fill orders at a different price from the quote during fast markets; some publish slippage statistics.
• Crypto: large market orders on smaller tokens can move the price a lot. Decentralised exchanges let you set a maximum slippage tolerance.
• Options: wide spreads make the gap between the quote and your fill especially costly.
• Prediction markets: large orders in thin markets fill at progressively worse prices per share, just like stocks.

Frequently asked questions#

Is slippage a fee?#

No. It is not charged by the broker; it is the result of the market price moving or your order using up liquidity. It is still a real trading cost.

How much slippage is normal?#

In liquid stocks and major currency pairs, it is often a fraction of a cent or a fraction of a pip in normal conditions. In thin markets or fast news, it can be much larger.

Can limit orders have slippage?#

A limit order cannot fill at a worse price than its limit, so it has no negative slippage relative to that price. The trade off is that it may not fill at all.

Sources#

• Wikipedia, Slippage (finance)