Definition
Slippage occurs when a trade executes at a different price than expected. It commonly happens with market orders, especially for large orders or in fast-moving or illiquid markets. Positive slippage (better than expected price) is possible but negative slippage (worse price) is more common. Slippage is an important consideration for traders calculating true trading costs and can significantly impact returns, particularly for high-frequency or large-volume traders.
Formula
Example
You place a market buy order when the ask shows $100. Due to a sudden price spike, your order fills at $100.50. Your slippage is $0.50 or 0.5% per share.
FAQ
What is Slippage?
The difference between expected and actual execution price of a trade.
How do you calculate Slippage?
A common formula for Slippage is: Slippage = Executed Price - Expected Price
Why is Slippage important?
Slippage helps investors evaluate trading mechanics and make more informed decisions.
Related Terms
Market Order
An order to buy or sell a security immediately at the best available price.
Limit Order
An order to buy or sell a security at a specified price or better.
Bid-Ask Spread
The difference between the highest bid price and lowest ask price for a security.
Liquidity
The ease with which an asset can be bought or sold without significantly affecting its price.