Slippage

Slippage is the difference between the expected price of a trade and the actual price at which the trade is executed.

It occurs when market conditions prevent an order from being filled at the requested price.

Formula

Slippage = Execution Price - Requested Price

Types of Slippage

1.    Positive Slippage

o   Trade is executed at a better price than requested

o   Benefits the trader

2.    Negative Slippage

o   Trade is executed at a worse price than requested

o   Results in additional cost or reduced profit

How Slippage Occurs

Slippage typically happens due to:

·        High market volatility (rapid price changes)

·        Low liquidity (not enough buyers/sellers at the desired price)

·        Large order sizes (exceeding available market depth)

·        Market gaps (price jumps between levels)

 Practical Example

·        Trader places a Buy order at 1.1050

·        Order is executed at 1.1053

 Slippage = +3 pips (negative slippage for buyer)

 When Slippage is Most Common

·        During major news releases

·        At market open or close

·        In thinly traded markets

·        During high-impact economic events

 Market Orders vs Pending Orders

·        Market Orders

o   Most exposed to slippage

o   Executed at the best available price

·        Pending Orders (Limit/Stop)

o   Limit orders: Usually avoid negative slippage (price or better)

o   Stop orders: Can experience significant slippage during fast markets

 Slippage vs Spread

 Spread is a known cost, while slippage is unpredictable.

 Why Slippage Matters

·        Impacts entry and exit precision

·        Affects profitability and risk calculations

·        Can significantly alter results in high-frequency or scalping strategies

 Common Trader Mistakes

·        Assuming execution always occurs at the requested price

·        Trading during high volatility without accounting for slippage

·        Using tight stop-losses that are easily affected by slippage

 Best Practices

·        Trade during high liquidity periods

·        Avoid entering trades during major news events (unless intentional)

·        Use limit orders where precise entry is critical

·        Factor slippage into risk management and strategy testing

 Key Takeaways

·        Slippage = execution price difference from expectation

·        It can be positive or negative

·        It is driven by market conditions, not broker settings alone

·        Managing slippage is essential for accurate trade performance