What is Slippage in Trading? Causes, Impact, and How to Minimize It
Slippage in trading refers to the price difference between the level a trader expects and the level at which the order actually executes. Put simply, slippage is the gap between the requested price and the filled price of a trade. For example, a trader may place a market order to buy shares at $50, but if the order fills at $50.20 due to market conditions, that $0.20 gap is slippage.
Slippage meaning applies to all asset classes – from stocks and bonds to forex and crypto – whenever prices move while an order is filling. As Investopedia explains, slippage is most common in fast-moving markets with high volatility or low liquidity.
Market data changes quickly, so an order placed one moment may execute at a different price the next. Slippage measures that difference. Across any trading venue, experts note that slippage can be positive or negative. In positive slippage, the execution price is better than expected (for example, buying below the bid price), while negative slippage means you pay more or receive less than intended.
As IG Group's trading academy puts it, slippage "can be either an unexpected bonus or an unwelcome surprise – depending on which way it goes". This variation depends on factors like market direction, whether you're opening or closing a position, and whether you're long or short. Because of this, slippage should be viewed as an unavoidable aspect of trading, not a rare glitch.
What is Slippage in Trading? -Definition & Meaning
At its core, "what is slippage in trading?" can be answered simply: it's any scenario where the final execution price differs from the intended price. This can happen with market orders (which take the best available price) or even stop orders if markets move too quickly. The Corporate Finance Institute adds that slippage occurs when "an order is executed at a price greater or lower than the quoted price". In other words, whenever the market price changes between the time an order is placed and the time it fills, slippage has occurred.
| Trading Slippage Overview | |
| Definition | Any scenario where the final execution price differs from the intended price. Occurs when an order executes at a price greater or lower than the quoted price due to market price changes between order placement and execution. |
| Primary Causes | Volatility: Sharp price swings cause orders placed seconds ago to mismatch current prices Low Liquidity: Insufficient buyers/sellers at requested price forces orders to "slip" to next available level Market Delays: Even seconds of delay can change market prices, especially during major news events |
| Affected Markets | EquitiesCurrencies (Forex)FuturesCryptocurrencyBonds |
| Key Insight | Slippage reflects real-world supply and demand dynamics. Orders execute at the best available prices at execution time, not necessarily the prices when the order was originally placed. This occurs across all market venues and trading hours. |
Why does this happen? One common cause is volatility. If prices are swinging sharply, an order placed a second ago might not match the price now. Low liquidity is another culprit: if there aren't enough buyers or sellers at the requested price, the order "slips" to the next available level. As IG explains, "slippage generally occurs when there is low market liquidity or high volatility," because fewer participants or rapid price swings mean delays in filling orders. In practice, even a few seconds' delay can change the market price, especially around major news events (like Fed announcements or earnings) when markets surge or gap unexpectedly.
It's important to note that slippage can happen in any market. Whether trading equities, currencies, futures, or even crypto, the mechanism is the same. As Investopedia notes, slippage "occurs in all market venues, including equities, bonds, currencies, and futures". Even markets that run 24/7 (like crypto or forex) experience slippage during thin trading hours. In all cases, slippage reflects the real-world dynamics of supply and demand: an order meets the best available prices at the moment it executes, not necessarily the prices at the moment it was placed.
What Causes Slippage in Trading?
Slippage is caused by the intersection of market conditions and trading methods. Some common triggers include:
High Market Volatility
Sudden price swings (for example, after economic news or earnings releases) mean the quoted price can move before an order is filled. In volatile conditions, "price movements can happen quickly – even in the few seconds that it takes to fill an order," leading to slippage.
Low Liquidity
When few buyers or sellers are available at a given price, large market orders move the price. A big order with insufficient depth will eat through the bid/ask spread, resulting in a different fill price. As IG notes, in low liquidity markets there are "fewer market participants to take the other side of a trade," so it takes longer to find a match and prices can shift in the meantime.
Order Type
Market orders (which guarantee execution but not price) are especially prone to slippage, whereas limit orders (which guarantee price but not execution) can avoid slippage. Investing via market orders essentially says "fill me at the best available price," which by definition can be higher or lower than the expected price.
Time of Day
Thin trading sessions (e.g. overnight or off-market hours) or around news releases often see more slippage. For instance, when markets open after a break, prices might gap to reflect news from off hours – any orders triggered at open may slip to the new level.
Broker Practices
In rare cases, broker execution policies can affect slippage. Some brokers might add additional delay or partial fills. It's crucial to use reputable platforms and read their execution policies, as dishonest brokers may blame trading losses on exaggerated slippage.
Overall, slippage is simply the market's way of matching orders. Any time there is a delay or a shift between order placement and fill, slippage can occur. Analogy: think of scheduling a taxi at 5:00pm. If traffic suddenly worsens, your pickup time or fare might change by the time the taxi arrives. In trading, "traffic" is liquidity and volatility, and slippage is the change you end up paying.
What is Slippage in Forex Trading?
Forex (currency) markets are especially sensitive to slippage because they trade 24 hours and respond to global news. What is slippage in forex trading? It follows the same definition: the difference between the expected exchange rate and the actual rate when the order executes. In practice, this often happens during major market hours or economic releases. For example, when a central bank makes an unexpected announcement, many forex orders may execute at prices quite different from quotes seen a moment before.
In FX trading, slippage is frequently observed around news like interest rate decisions. If a trader places a market order to buy EUR/USD at 1.1000 just as a surprise ECB rate hike is announced, the order might fill at 1.1020 – a 20-pip negative slippage. Conversely, if it happens to spike downward, a buy order could fill at 1.0980, a 20-pip positive slippage for the trader. Because forex markets involve huge volumes, very small delays (milliseconds or seconds) can shift prices.
Liquidity in forex is generally high (major pairs have deep order books), but gaps can still occur between major sessions. For instance, a trade placed during the US trading hours might slip when the Asian markets are less active, or vice versa. Traders must also beware of brokers' "last look" practices, where a liquidity provider may reject a price and offer a new one – effectively a hidden form of slippage.
| Forex Slippage Overview | |
| Definition | Difference between expected exchange rate and actual execution rate in currency trading. |
| Key Triggers | • Central bank announcements • Interest rate decisions • Economic releases • Session transitions |
| Example | EUR/USD at 1.1000: Fills at 1.1020 (20 pips worse) Fills at 1.0980 (20 pips better) |
| Market Characteristics | 24-hour trading with instant global response High liquidity but gaps during session changes Millisecond delays can shift prices "Last look" practices create hidden slippage |
| Reduction Tips | Use limit orders Trade during major session overlaps Use guaranteed stop-loss for news Avoid low liquidity periods |
In short, slippage in forex trading works just like in equities or crypto: an order meets changing prices. To reduce forex slippage, experienced traders often use limit orders or guaranteed stop-loss orders (when available) around volatile news, and trade during major market overlaps (London/New York) when liquidity is highest.
Slippage Across Asset Classes
Slippage occurs in all trading venues, but the impact varies by asset. In stock markets, slippage can happen at market open/close or during earnings news. For illiquid or small-cap stocks, a large order might move the price significantly (price gap slippage). In cryptocurrency markets, slippage can be extreme during sudden rallies or crashes, since these assets are relatively new and can be highly volatile. Even in bond or commodity trading, slippage appears when order sizes exceed available bids/asks.
However, the core principle is universal: any time an order can't be filled exactly as requested, slippage fills the gap. Many trading strategies account for expected slippage by adjusting entry points or using tighter risk controls.
How to Minimize Slippage in Trading
While you can't eliminate slippage, you can mitigate its effects. Here are key tactics used by experienced traders:
| How to Minimize Trading Slippage | ||
| Strategy | Description | Example/Note |
| Trade High-Liquidity Markets | Choose markets with deep order books during peak trading times | Major currency pairs during London/New York overlap; avoid thin markets late at night |
| Use Limit Orders | Guarantee price execution at your specified level or better | May not fill at all; guaranteed stop-loss orders available with some brokers |
| Avoid Major Events | Stay flat during scheduled news or earnings releases | Slippage prevalent around major news - skip trades or reduce order size |
| Check Broker Policies | Understand how your platform handles slippage and execution | Some reject orders beyond tolerance; others fill at any price |
| Split Large Orders | Break big trades into smaller chunks or use iceberg orders | Smaller orders fill closer to market price, reducing market impact |
Trade in High-Liquidity, Low-Volatility Markets
Choose markets and times with deep order books. As IG suggests, "Trading in markets with low volatility and high liquidity can limit your exposure to slippage". For example, trade major currency pairs during peak session overlaps (e.g. London/New York) or avoid extremely thin markets late at night.
Use Limit and Stop Orders
Unlike market orders, limit orders guarantee price. Placing a limit order ensures the trade fills no worse than your price, though it may not fill at all. Similarly, guaranteed stop-loss orders (available with some brokers) close positions at the exact level specified, removing negative slippage risk (at a small premium).
Avoid Trading Around Major Events
If possible, stay flat during scheduled news or earnings releases. As IG notes, slippage "tends to be prevalent around or during major news events". Skipping trades at those times or reducing order size can prevent large unexpected moves.
Check Broker Policies
Know how your platform handles slippage. Some brokers "reject the order" if the price moves beyond a tolerance, while others fill at any price. Choose well-regulated brokers with transparent execution.
Spread Out Large Orders
If you need to trade a big size, do it in smaller chunks or via iceberg orders. This limits market impact and slippage, as smaller orders are more likely to fill at prices close to the current market.
By combining these steps, traders can limit slippage risk. According to Investopedia, slippage can be reduced by "not executing trades late in the day, investing in calm and liquid markets, and placing limit orders". In practice, discipline and preparation are the best defenses against unwanted slippage.
Conclusion
Slippage is an inherent part of trading any asset, acting as a reality check on price forecasts. By understanding slippage and its drivers, traders can better anticipate its occurrence. Think of slippage like catching a moving train: if the train speeds up or slows down unexpectedly, you end up on a slightly different car than planned. In markets, "the only constant is change," so the price at execution often shifts.
Rather than viewing slippage as purely negative, savvy traders recognize that positive slippage can actually improve trade outcomes. Regardless, minimizing slippage involves good habits: focusing on liquid markets, using appropriate order types, and staying aware of volatility. Over time, incorporating slippage into trade planning (for example, adding a few ticks for a stop-loss buffer) becomes second nature.
By keeping these strategies in mind, traders can reduce unwelcome surprises and even leverage slippage in their favor when markets allow. In summary, slippage is simply the gap between expectation and reality in trade execution – one that every trader must manage with smart tactics and awareness.
FAQs
What is slippage in trading?
Slippage is the difference between the price you expect for a trade and the price at which the order actually executes. It can be positive (better price) or negative (worse price). Slippage happens in all markets – stocks, forex, crypto, etc. – especially during high volatility or low liquidity. Experts define slippage as any situation where your trade is filled at a different level than intended. In practice, if you place a market order, you should expect some slippage as the market moves between order placement and execution.
How does slippage affect my trading?
Slippage can change your trade's outcome by altering entry or exit prices. Negative slippage (paying more to buy or receiving less to sell) can worsen your profit or increase loss, while positive slippage does the opposite. For example, if you set a stop-loss order expecting to sell at $100 but it executes at $99.50, the extra $0.50 per share lost is slippage. Over many trades, high slippage can significantly impact performance. It's important to factor slippage into trading costs and risk management to maintain realistic expectations.
Can slippage ever be positive?
Yes. Positive slippage occurs when a trade executes at a better price than expected. For instance, placing a buy order at $50 and getting filled at $49.90 gives you $0.10 per share better than intended. According to IG, positive slippage "means that you'll get a better price than what you expected". While traders often focus on negative slippage, positive slippage is essentially a bonus that sometimes happens, especially in volatile markets when prices swing quickly in your favor before execution.
How can traders minimize slippage?
Traders use several tactics to reduce slippage risk. Key strategies include trading during periods of high liquidity, using limit orders or guaranteed stops, and avoiding market orders around major news. For example, placing a limit order instead of a market order ensures you never pay more than your limit price. Additionally, as Investopedia suggests, trading in calm, liquid markets and "placing limit orders" helps limit slippage. Checking your broker's execution policy and splitting large orders into smaller ones can also help keep slippage to a minimum.
What is slippage in forex trading?
In forex, slippage works the same way as in other markets. It is the difference between the quoted exchange rate when you place the order and the rate when it actually fills. Because forex moves 24/7, slippage can occur at any time, often during overlaps of major sessions or around news events. For example, a sudden interest rate decision can cause EUR/USD to jump, so a buy order might fill at a significantly different rate than expected. Traders often mitigate forex slippage by trading major currency pairs during peak hours and using limit orders to lock in prices.