What Is Slippage?
Slippage is the gap between the price you intended to trade at and the price your order actually filled at. It's caused by the time delay between order submission and execution, during which the market can move, and by insufficient liquidity at the desired price level.
Slippage tends to be worst on: thinly traded instruments, news-driven moves, the open/close of trading sessions, and large orders relative to available liquidity. It tends to be minimal on: highly liquid mega-caps, mid-session calm periods, and small orders.
For systematic traders, slippage is a real cost that erodes expectancy. Backtests that ignore slippage routinely overstate profitability. A reasonable assumption for backtests on liquid US stocks is 0.05-0.1% per side; for crypto on retail exchanges, 0.2-0.5% per side. Always net slippage out of expected returns when evaluating any signal service.
Related terms
- Liquidity — The ease with which an asset can be bought or sold without significantly affecting its price.
- Market Order — An order to buy or sell immediately at the best available price — guarantees execution, not price.
- Expectancy — The average profit or loss per trade, given win rate and average win/loss size.