
Slippage & Example
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. The final execution price vs. the intended execution price can be categorized as positive slippage, no slippage, or negative slippage. Slippage occurs when the bid/ask spread changes between the time a market order is requested and the time an exchange or other market-maker executes the order. 1:59 Slippage does not denote a negative or positive movement because any difference between the intended execution price and actual execution price qualifies as slippage. While a limit order prevents negative slippage, it carries the inherent risk of the trade not being executed if the price does not return to the limit level.

What Is Slippage?
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. Slippage can occur at any time but is most prevalent during periods of higher volatility when market orders are used. It can also occur when a large order is executed but there isn't enough volume at the chosen price to maintain the current bid/ask spread.



How Does Slippage Work?
Slippage does not denote a negative or positive movement because any difference between the intended execution price and actual execution price qualifies as slippage. When an order is executed, the security is purchased or sold at the most favorable price offered by an exchange or other market maker. This can produce results that are more favorable, equal to, or less favorable than the intended execution price. The final execution price vs. the intended execution price can be categorized as positive slippage, no slippage, or negative slippage.
Market prices can change quickly, allowing slippage to occur during the delay between a trade being ordered and when it is completed. The term is used in many market venues but definitions are identical. However, slippage tends to occur in different circumstances for each venue.
While a limit order prevents negative slippage, it carries the inherent risk of the trade not being executed if the price does not return to the limit level. This risk increases in situations where market fluctuations occur more quickly, significantly limiting the amount of time for a trade to be completed at the intended execution price.
Example of Slippage
One of the more common ways that slippage occurs is as a result of an abrupt change in the bid/ask spread. A market order may get executed at a less or more favorable price than originally intended when this happens. With negative slippage, the ask has increased in a long trade or the bid has decreased in a short trade. With positive slippage, the ask has decreased in a long trade or the bid has increased in a short trade. Market participants can protect themselves from slippage by placing limit orders and avoiding market orders.
For example, say Apple's bid/ask prices are posted as $183.50/$183.53 on the broker interface. A market order for 100 shares is placed, with the intention the order gets filled at $183.53. However, micro-second transactions by computerized programs lift the bid/ask spread to $183.54/$183.57 before the order is filled. The order is then filled at $183.57, incurring $0.04 per share or $4.00 per 100 shares negative slippage.
Slippage and the Forex Market
Forex slippage occurs when a market order is executed or a stop loss closes the position at a different rate than set in the order. Slippage is more likely to occur in the forex market when volatility is high, perhaps due to news events, or during times when the currency pair is trading outside peak market hours. In both situations, reputable forex dealers will execute the trade at the next best price.
Related terms:
At-the-Market
An at-the-market order buys or sells a stock or futures contract at the prevailing market bid or ask price at the time it gets processed. read more
Bid-Ask Spread
A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. read more
Dealer
A dealer is a person or firm who buys and sells securities for their own account, whether through a broker or otherwise. read more
Held Order
A held order is a market order that requires prompt execution for an immediate fill. read more
Markdown
A markdown is the difference between the highest current bid price in the market for a security and the lower price that a dealer charges a customer. read more
Market Price
The market price is the cost of an asset or service. In a market economy, the market price of an asset or service fluctuates based on supply and demand and future expectations of the asset or service. read more
Market-If-Touched (MIT) Order
A market-if-touched (MIT) order is a conditional order that becomes a market order when a security reaches a specified price. read more
Market Order
A market order is an instruction to a broker to buy or sell a stock or other asset immediately at the best available current price. read more
Trading Ahead
Trading ahead occurs when a market maker trades securities from his firm's account instead of matching available bid and ask orders from investors. read more
Volatility : Calculation & Market Examples
Volatility measures how much the price of a security, derivative, or index fluctuates. read more