Slippage
Learn how slippage measures the difference between the expected or reference price and the actual execution price, why it can be positive or negative, and
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Core concept
Slippage is the difference between an expected, quoted or decision price and the price actually achieved. On a CEX it can arise because the book changes or an order consumes several levels. On a DEX it can arise because pool state changes between quote and settlement, because of the trade’s own impact, routing changes or MEV.
How the mechanics fit together
Quote, mid, decision price or expected output.
Latency, depth consumption, volatility, MEV.
VWAP or final received amount.
Actual minus reference, expressed in price or bps.
For a buy, paying more than expected is negative slippage; paying less is positive. For a sell, receiving less than expected is negative. The sign convention should be stated explicitly in analytics.
Evidence to inspect
- The reference price used: order-submission price, midpoint, arrival price or quoted DEX output.
- Actual fill-by-fill execution and VWAP.
- Time between decision, order submission and final fill.
- Order size relative to available depth.
- Volatility and market movement during the execution window.
- On-chain: quoted output, minimum received, transaction path and block inclusion conditions.
Practical workflow
- Define the reference price before execution.
- Record the order type, intended size and market conditions.
- After execution, calculate VWAP or final received amount.
- Express slippage in bps relative to the original reference.
- Separate spread, explicit fees and known price impact where possible.
- Track slippage by venue, order type, size and volatility regime to improve future execution rules.
Worked example / thought exercise
A trader decides to buy at a reference price of £100.00. The market order fills at an average of £100.12.
Slippage = (100.12 − 100.00) / 100.00 × 10,000 = 12 bps negative slippage for the buyer.
If the venue also charges a 10-bps taker fee and the pre-trade ask was already 5 bps above midpoint, the total implementation cost is greater than the 12-bps slippage figure alone.
Why would comparing only trading fees miss a large part of this execution cost?
Common mistakes and misunderstandings
Treating slippage as an exchange fee
Slippage is execution-price deterioration or improvement. Explicit trading fees are separate.
Using an undefined reference price
Slippage measured from midpoint can differ from slippage measured from the best ask or decision price.
Assuming limit orders have zero execution cost
They can avoid crossing immediately but introduce non-fill and adverse-selection risk.
Confusing DEX tolerance with expected slippage
A 2% tolerance is a maximum protection band, not a prediction that execution will be 2% worse.
Knowledge checkpoint
- A buy decision price is £50 and VWAP is £50.10. What is the negative slippage in bps?
- Why must a slippage report state its reference price?
- How can a trade show low explicit fees but still have poor implementation shortfall?
FAQs
❓ Can slippage be positive?
Yes. Execution can be better than the chosen reference price, although traders should not rely on positive slippage.
❓ Do market orders always have slippage?
Not necessarily, but they are exposed to it because they prioritise execution over price certainty.
❓ Does a limit order eliminate slippage?
It limits the execution price, but may not fill and can still face opportunity cost or adverse selection.
❓ What is the difference between slippage and market impact?
Market impact is the price effect caused by your own order. Slippage is the broader difference between expected and actual execution and can include market movement, impact and latency effects.
📋 Summary
Slippage measures the gap between expected and actual execution. Define the reference price, calculate realised VWAP, and separate slippage from spread, fees and market impact. Tracking slippage by size and regime is a core execution-quality discipline.
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