Slippage

What Is Slippage?

Slippage is the gap between the price shown when an order is placed and the price at which it is actually filled. It can work against a trader, who ends up with a worse price than expected, or in their favor, who gets a better one. Slippage is most noticeable in fast-moving markets, in thinly traded securities, and when large orders are placed.

Why Slippage Happens

Slippage often comes from the time between placing an order and having it executed. If you place a market order, your broker fills it at the best available price when the order reaches the exchange. Prices can change in that brief interval, especially during periods of high volatility.

Limited liquidity is another common cause. When the bid-ask spread is wide, or when there are not enough shares offered at the best price, a large order may be filled across several price levels. The average price then differs from the quote that was displayed at the start.

How Slippage Is Measured

Slippage is usually calculated by comparing the executed price with the expected price, often the last quoted price or the midpoint between the bid and ask at the time of the order:

Slippage per share = Executed price − Expected price

On a buy, a positive result means the trade cost more than expected. On a sell, a negative result means the trade brought in less than expected. Multiplying the per-share figure by the number of shares gives the total dollar effect.

Managing Slippage

Some traders use limit orders, which set the worst acceptable price for a trade. This limits slippage, but the order may not fill at all if the market does not reach that price. Slippage tends to be smaller in highly liquid stocks and during regular trading hours, when more buyers and sellers are active. Understanding slippage helps investors compare the true cost of trades with the quoted price.