Slippage
Family IV · Costs
Not to be confused with slippage during news.
Slippage is the gap between the price a trader anticipates for an order and the price at which that order is executed. It arises when the market moves between the moment an order is submitted and the moment it is filled, or when there is not enough volume at the requested price to fill the whole order. Slippage can be positive or negative: it may result in a worse fill, a better fill, or a partial fill at several prices.
How slippage occurs
Slippage is a normal feature of order execution in any market where prices change continuously. It is most common with market orders, which instruct a broker or venue to fill at the best available price rather than a specified one. When the order reaches the market, the best bid or offer may already have changed, so the fill occurs at the next available level.
Factors that influence the size of slippage include:
- Liquidity: thin order books offer fewer shares or contracts at each price, so larger orders sweep through multiple levels.
- Volatility: rapid price changes widen the gap between the expected and executed price.
- Order size: an order larger than the volume available at the top of the book will fill at progressively worse levels.
- Latency: the time between order submission and arrival at the matching engine allows prices to move.
Limit orders constrain slippage on price but introduce the risk of no fill or a partial fill, since the order executes only at the specified price or better.
Worked example
A trader submits a market buy order for 1,000 shares of a stock quoted at 50.00 / 50.02. By the time the order reaches the book, the offer has moved and the available liquidity is 400 shares at 50.05, 400 shares at 50.08 and 200 shares at 50.12.
The average fill of 50.076 is 0.056 above the expected 50.02, so the trader pays 56.00 more in total than the quoted price implied. The figure is illustrative; actual fills depend on the venue, the order book and prevailing conditions.
Positive and negative slippage
Slippage is not always a cost. If the market moves favourably between order submission and execution, the fill can be better than the expected price, which is sometimes called positive slippage. On a market sell order, for example, a rising bid would produce a higher fill than the quote at submission.
Brokers and venues differ in how they handle slippage. Some pass fills through directly from the market, while others may apply different execution models. The treatment of slippage, and whether any compensation or price improvement is offered, varies by broker, venue and regulatory regime, so the applicable terms should be checked with the specific provider.
Often confused with
- slippage during news
- Slippage is the general gap between expected and executed price in any market condition, whereas slippage during news is the same effect concentrated around scheduled announcements or data releases, when liquidity thins and volatility spikes; the visible sign is that the wider fills cluster within seconds of a known event time rather than occurring randomly through the session.