Slippage Analysis

Slippage analysis is the practice of measuring, over many trades, how far your actual fill prices are from the prices you intended or expected. One trade's slippage tells you little. A hundred trades tell you how much execution is really costing you, which order types and times are expensive, and whether your backtest assumptions are realistic.

Choosing a benchmark#

Slippage is always measured against a reference price. The right one depends on what you want to learn:

For most individual traders, arrival price for market orders and stop price for stop orders are the most useful.

The calculation#

Slippage (buy) = Fill price − Benchmark price
Slippage (sell) = Benchmark price − Fill price

Positive values are costs; negative values are improvements. Express slippage in a common unit so you can compare trades: basis points (hundredths of a percent), ticks, or R multiples of your planned risk.

A simple spreadsheet method#

Add these columns to your Trading Journal:

1. Order type (market, limit, stop).
2. Benchmark price (quote at send, or stop price).
3. Fill price and quantity.
4. Slippage in dollars, basis points and R.
5. Time of day and market conditions (normal, news, open, close).

After 50 to 100 trades, group the results.

Acting on the results#

• High stop slippage: consider wider but fewer trades, smaller size through events, or guaranteed stops where available.
• High market order slippage at the open: wait a few minutes or use marketable limit orders.
• Large slippage on bigger orders: split orders or use execution algorithms. See Market Impact and VWAP, TWAP and POV Execution.
• Instrument specific costs: remove the most expensive instruments from your list.

Update your backtests#

If your live slippage averages 2 ticks per trade but your backtest assumed 0.5, your backtest overstates performance. Feed measured slippage back into testing. See Costs and Slippage in Backtests.

Professional slippage analysis#

Institutions run transaction cost analysis (TCA) on every order, comparing results with arrival price, VWAP and implementation shortfall, and breaking costs into delay, impact and spread. The principles are the same as the spreadsheet method above, just with more data. See Implementation Shortfall and Best Execution and Execution Quality.

Frequently asked questions#

How do you calculate slippage?#

For a buy, subtract the benchmark price from the fill price; for a sell, subtract the fill price from the benchmark. Positive results are costs.

What is acceptable slippage?#

It depends on the market and strategy. Compare it with your average profit per trade; if slippage takes a large share of it, your strategy is fragile.

Why should I measure slippage in R?#

Because it shows directly how execution changes your planned risk and reward, regardless of price level or instrument.