Slippage in Trading
Slippage is the difference between the price you expect to get when you place an order and the actual price at which that order is filled. It usually happens when markets move quickly or when there isn't enough liquidity at your requested price.
A Normal Part of Trading
Slippage is a normal part of trading, not a glitch. It can be negative (worse price than expected) or positive (better price than expected), depending on which way the market moves as your order is executed.
💡Understanding slippage helps you set realistic expectations about execution, especially around news, market opens and in fast-moving markets.
What Exactly Is Slippage?
When you send an order, your trading platform shows a current price, but by the time your order reaches the broker, the market may have moved. Slippage is simply:
Slippage = Fill Price − Requested Price
(For buys, sign depends on direction)
Types of slippage:
Negative Slippage
Worse price than requested (buy higher, sell lower)
Positive Slippage
Better price than requested (buy lower, sell higher)
No Slippage
Filled exactly at your requested price
Many traders only notice negative slippage, but positive slippage can and does occur, especially with true market execution.
Example: Slippage on a Market Order
Suppose EUR/USD is quoted at:
Bid: 1.1000
Ask: 1.1002
You place a market buy order expecting to be filled at 1.1002 (ask). In the next milliseconds:
Buy orders flood in after a news release
Available liquidity at 1.1002 is consumed
The next best ask is now 1.1004
Result: Your order is filled at 1.1004 instead of 1.1002. You experienced 2 pips of negative slippage.
If the opposite had happened (selling pressure pushed the ask down to 1.1000 before fill), you would have seen 2 pips of positive slippage.
Why Does Slippage Happen?
Slippage occurs because markets are dynamic and orders are not filled instantly at a fixed price. Key reasons include:
- Volatility: Fast price movements after news or during active sessions mean prices can change in milliseconds.
- Liquidity: If there is not enough volume at your chosen price level, the rest of your order must be filled at the next available prices.
- Order type: Market orders accept the best available price, which can change during execution. Stop orders that become market orders can also slip.
- Execution speed and routing: Network latency, broker infrastructure and routing paths all affect how quickly your order reaches liquidity.
- Market gaps: When markets open or after weekend gaps, there may be no prices traded at your requested level.
Slippage is not unique to any one broker or platform — it is a structural feature of real-time markets.
Is Slippage Always Bad?
Not always. With genuine market or ECN-style execution:
Market Moves Against You
You get negative slippage — worse fill than expected.
Market Moves In Your Favour
You can receive positive slippage — better fill than expected.
Some brokers implement slippage protection policies:
- Allowing positive slippage but limiting or rejecting large negative slippage beyond a certain tolerance.
- Rejecting fills outside a predefined "maximum slippage" range (especially for limit or stop-limit orders).
Over a large sample of trades, slippage is part of your total cost and should be monitored just like spreads and commissions.
How Can You Manage and Reduce Slippage?
You cannot eliminate slippage completely, but you can reduce its impact:
Avoid High-Impact News
If your strategy doesn't specifically target volatility, avoid trading during major releases.
Trade Liquid Instruments
Major FX pairs and large indices instead of thin, exotic or illiquid markets.
Use Limit Orders
For entries where price is critical, accepting the risk of non-fills.
Monitor Broker Stats
Check typical slippage, rejections, and behaviour around news events.
Avoid Oversized Positions
Relative to market depth; large orders are more likely to experience slippage.
Key Principle: Good risk management assumes that stops, entries and exits may not always be filled at the exact level you planned.
Common Misconceptions About Slippage
"Every slippage is broker manipulation."
While unethical brokers exist, most slippage is due to normal market behaviour. Check if slippage occurs mainly during volatile or illiquid periods.
"If I use a stop loss, I will always exit exactly at my stop price."
Stop losses become market orders when triggered and can slip in fast-moving markets or gaps.
"High leverage causes slippage."
Leverage affects risk, not execution mechanics. Slippage is about liquidity, volatility and order handling, not leverage itself.
Quick Checkpoint: Do You Understand Slippage?
Try to answer these in your own words:
- What is slippage and when does it occur?
- What is the difference between positive and negative slippage?
- Why are market and stop orders more exposed to slippage than limit orders?
- What practical steps can you take to reduce the impact of slippage on your results?
Tip: If you can answer these clearly, you are thinking realistically about how orders interact with real-time markets.
Frequently Asked Questions
Can I completely avoid slippage?
No. In live markets, there is always the possibility that prices move between the time you send an order and the time it is filled. You can reduce slippage but not eliminate it entirely.
Do ECN or STP brokers have less slippage?
They may offer more transparent and faster execution, which can reduce slippage in some cases, but in very fast markets, slippage can still occur. Slippage reflects market reality, not just broker type.
Why do I sometimes see no slippage on demo but slippage on live?
Demo accounts often simulate ideal fills without true market depth or routing delays. Live accounts must deal with real liquidity, volatility and network conditions, so slippage shows up.
Should I include slippage in my backtesting?
Yes. When testing strategies, especially short-term ones, you should include realistic assumptions for spreads, commissions and average slippage. This makes your results closer to real-world performance.
Summary: Slippage and Realistic Execution
Slippage is the difference between the expected and actual fill price of an order, caused by changing market conditions and limited liquidity at each price level. It can be positive or negative and is especially common in volatile or thin markets.
For traders, slippage is a key part of execution risk. By understanding when and why it happens, and by adjusting your strategy, order types and trading times, you can keep slippage within reasonable bounds and build more realistic expectations about your trades.
Next Steps: In the next lessons, you'll look at execution speed and market depth, which further explain how your broker and the market handle your orders and how that shows up in your trading results.
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