Quick definition Slippage is the difference between your expected execution price and your actual fill price. If you expect to buy at 100.00 but execute at 100.10, the slippage is 0.10 dollars. What it is Slippage occurs for several reasons. The most common is market impact; your large order consumes liquidity and moves the price against you. Another source is market movement between the time you place the order and the time it executes. A third source is poor execution routing, where a broker fills you at a worse price than the best available. Why it matters Slippage directly reduces your trading profit. On a round-trip trade, slippage on entry and exit can exceed your expected edge. Minimizing slippage is critical for profitable trading, especially for strategies with small profit margins. Slippage versus Market Impact Market impact is the price change caused by your order. Slippage is the total difference between your expected price and actual fill price, which can include market movement unrelated to your order. Practical example You expect the mid-price to be 100.00 dollars and plan to buy at 100.01 dollars (the ask). By the time your order reaches the market, the mid-price has moved to 100.10 dollars and the ask is 100.11 dollars. You fill at 100.11 dollars. The slippage is 0.10 dollars. Minimizing slippage Use limit orders to control the price at which you execute, trading execution certainty for price certainty. Use algorithms like VWAP or TWAP to spread large orders over time, reducing market impact. Route orders to venues with the best prices. See also - Market Impact - Bid-Ask Spread - VWAP (Volume-Weighted Average Price) - Best Execution
