What Is Slippage in Trading?
Learn what slippage is, why it happens, and how it can affect trade execution during volatile or low-liquidity market conditions.
- 6 min read
- For beginners
- Educational
- Lesson 5 of 6
Slippage is a term traders encounter when the price at which a trade is actually executed differs from the price they expected. This guide explains what causes slippage and when it's more likely to occur.
Understanding slippage helps set realistic expectations, particularly around fast-moving market conditions.
What Is Slippage?
Slippage refers to the difference between the expected price of a trade (the price at the moment an order is placed) and the actual price at which the trade is executed. Slippage can occur in either direction — resulting in a better or worse price than expected — though it's often discussed in the context of unfavorable price differences.
When Does Slippage Occur?
Slippage tends to occur more frequently during periods of low liquidity or high volatility, such as around major economic news releases, market open/close transitions, or during unexpected geopolitical events. In these conditions, prices can move quickly between the moment an order is placed and the moment it's executed.
Why Slippage Matters
Because slippage can affect the actual entry or exit price of a trade, it's a relevant factor to consider when planning around high-impact events or when trading instruments that are prone to lower liquidity. Being aware of slippage risk supports more realistic expectations about execution, particularly during volatile periods.
Summary
Slippage refers to the difference between an expected and actual trade execution price, and it tends to occur more often during periods of low liquidity or high volatility. Being aware of when slippage is more likely can help set realistic expectations around trade execution.
Frequently Asked Questions
No. Slippage can result in either a better or worse execution price than expected, though it is often discussed in relation to unfavorable outcomes.
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