Slippage refers to the difference between the expected price of a trade and the actual execution price. It occurs due to factors like market volatility, low liquidity, and delayed order execution when markets fail to match orders at desired prices.
There are two types of slippage:
- Positive slippage: Orders are executed at better prices.
- Negative slippage: Orders are executed at worse prices.
Example: An investor places a market order to buy a stock at $50, but it executes at $52—resulting in $2 of negative slippage.
Traders mitigate slippage by:
- Using limit orders
- Trading highly liquid markets
- Breaking large orders into smaller ones
- Avoiding trading during major news events
What Is Slippage?
Slippage is the gap between a trade’s requested price and its execution price. It’s common in volatile or illiquid markets and affects outcomes across forex, stocks, crypto, and futures.
Slippage in Trading
Occurs when orders execute at unintended prices due to rapid price changes, often during off-peak hours or news events. Traders use limit orders to minimize risk.
Slippage in Forex
Discrepancy between expected and executed prices on currency pairs. Major pairs (e.g., EUR/USD) experience less slippage due to high liquidity.
Example: A trader buys EUR/USD at 1.2000, but the order fills at 1.2010—a 10-pip negative slippage.
Slippage in Crypto
Caused by crypto’s inherent volatility. Popular coins (Bitcoin, Ethereum) face less slippage than newer assets.
Why Is Slippage Important?
Slippage impacts:
- Trade execution accuracy
- Profit/loss margins
- Stop-loss reliability (e.g., premature exits)
Forex traders prioritize brokers with fast execution to reduce slippage risks.
Types of Slippage
| Type | Description | Example |
|------------------|---------------------------------------------|----------------------------------|
| Positive | Order executes at a better price | Buy order fills below requested |
| Negative | Order executes at a worse price | Sell order fills above requested |
| No Slippage | Order fills exactly at requested price | Exact execution in stable markets |
Calculating Slippage
- Identify expected price (e.g., 1.2000).
- Note execution price (e.g., 1.2010).
- Calculate difference: (1.2010 – 1.2000) = 0.0010 (10 pips).
- Convert to percentage: (0.0010 / 1.2000) × 100 = 0.083%.
High slippage increases trade costs and complicates risk management.
Causes of Slippage
- Market volatility (e.g., news events).
- Low liquidity (few buyers/sellers).
- Order type: Market orders are most vulnerable.
- Slow execution: Delays from broker systems.
- Large orders: Exceeds available liquidity.
Slippage in Copy Trading
Frequent due to delays between signal providers and copiers. Volatile markets worsen partial fills.
How to Avoid Slippage
- Use limit orders to set price caps.
- Trade peak hours (e.g., London/NY overlap).
- Split large orders.
- Avoid news events.
- Choose reputable brokers with fast execution.
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FAQ
Q: Is slippage illegal?
A: No, unless brokers manipulate executions intentionally.
Q: Does slippage occur in demo accounts?
A: Yes, but less severely than in live trading.
Q: How does slippage affect forex costs?
A: Increases expenses via unfavorable fills and stop-loss triggers.
Q: What’s a slippage example?
A: Buying GBP/USD at 1.3650 but filling at 1.3660 (10-pip loss).