Slippage is the gap between the price you expected and the price you got. It happens because prices move between the moment you decide and the moment your order executes, and because large orders can exhaust the liquidity available at the best price. It is a hidden trading cost that does not appear in the fee schedule but shows up in every result.
How it works
The main causes:
- Fast markets. During news or sharp moves, volatility means the quote changes before your order arrives.
- Thin liquidity. If few orders sit near the current price, a market order fills across several price levels.
- Gaps. When a market opens far from the previous close, a stop-loss fills at the first available price, which may be well beyond the stop.
- Order size. Larger orders relative to the book move the average fill price.
Slippage mainly affects market orders and stop orders. A limit order trades the risk of slippage for the risk of not being filled. Slippage is separate from the spread, though the two often widen together.
Example
A trader sets a stop-loss on 200 shares at $38.00, risking $2.00 per share from a $40.00 entry, or $400 in total. Bad earnings come out after the close, and the stock opens the next day at $35.60. The stop triggers and becomes a market order, filling at $35.55.
- Planned loss: 200 × $2.00 = $400
- Actual loss: 200 × $4.45 = $890
- Slippage: $2.45 per share, $490 in total
The plan was sound, but the gap more than doubled the loss. That is why many traders reduce position size or close positions ahead of scheduled events.
Common mistakes
- Ignoring slippage in backtests. Results that assume perfect fills overstate performance.
- Market orders in illiquid assets. Small caps and minor tokens can slip badly.
- Trading the first seconds of news. Spreads and slippage peak at the release.
- Assuming a stop caps the loss exactly. It caps it approximately, except with a guaranteed stop.
Educational content — not financial advice.
Updated