Slippage: The Gap Between Expected and Actual Trade Prices

By Imperialpedia Staff

Slippage is the difference between the price a trader expected when placing an order and the price at which the trade actually executed. It happens because prices are constantly moving, and any gap between when an order is submitted and when it fills leaves room for the market to shift, sometimes favorably and sometimes not.

Why Market Orders Are More Prone to Slippage

A market order prioritizes speed over price control, filling against whatever prices are currently available in the order book. In fast-moving or thinly traded conditions, that can mean working through several price levels to fill a large order, producing an average execution price noticeably different from the last quoted price before the order was placed.

When Slippage Gets Worse

Slippage tends to spike around major news events, earnings releases, and market opens, when order books thin out and prices can gap between trades. Large orders relative to a stock's typical trading volume are also more prone to slippage, since a single big order can itself move the price it's trying to fill against.

How Traders Try to Manage It

Using limit orders instead of market orders, breaking large orders into smaller pieces over time, and avoiding periods of known volatility are all common tactics for reducing slippage. Institutional traders often use specialized execution algorithms designed specifically to minimize the market impact and slippage of large orders.

Table of Contents

Slippage: The Gap Between Expected and Actual Trade Prices

Why Market Orders Are More Prone to Slippage

When Slippage Gets Worse

How Traders Try to Manage It

Related Articles

Bid-Ask Spread: The Gap Between Buying and Selling Prices

Stop-Loss Order: An Automatic Exit When a Trade Goes Wrong

Earnings Guidance: Management's Forecast for Future Results

Bull Market: What Rising Prices Really Signal

Market Order: Trading Speed Over Price Certainty

Limit Order: Trading Price Certainty Over Speed

Volatility: Measuring How Much Prices Actually Move

Realized Gain: Profit Locked in by an Actual Sale

VIX: Wall Street's Gauge of Expected Market Volatility

Market Maker: The Firms That Keep Order Books Liquid

Gap Up and Gap Down: When a Stock Opens Far From Its Last Close

Ex-Dividend Date: The Cutoff for Collecting a Dividend

Intrinsic Value: What an Asset Is Actually Worth, Independent of Price

Liquidity: How Easily an Asset Converts to Cash

10-Q Filing: The Quarterly Check-In Between Annual Reports

Analyst Rating: Wall Street's Buy, Hold, or Sell Verdict