Slippage
Definition
Slippage is the difference between the price you expected to receive when placing a trade and the actual fill price you got — it occurs because the market moved between when you placed the order and when it was executed, or because you used a market order in a stock without enough liquidity to fill at the quoted price.
Example
“I entered a market order to buy 1,000 shares and expected to fill at $8.50 (the ask). Actual fill came back at $8.63 — $0.13 of slippage, $130 in real cost. In thin, fast-moving stocks, slippage is a hidden but very real trading cost.”
Detailed Explanation
Slippage happens in two main scenarios. The first is timing slippage in fast markets: you see a price, click buy, and by the time your order reaches the exchange (milliseconds later), price has moved. In a fast-moving stock, this can be significant. The second is liquidity slippage with market orders in thin stocks: the quoted ask is available for a limited number of shares, and your larger order sweeps through multiple price levels to fill completely. Each lot that fills above the original ask is slippage. The full impact is the average fill price minus the original ask times your share size.
Slippage is particularly punishing in scalping and high-frequency trading where the target gains per trade are small. If you're targeting $0.10 per share and you experience $0.08 of slippage on entry and exit combined, your actual edge on the trade is nearly zero before commissions. For position traders aiming for $2–3 moves, $0.05 slippage is largely irrelevant. This is why scalpers obsessively optimize execution: using direct-market-access (DMA) routing to place orders on specific ECNs, using limit orders whenever possible, and only trading highly liquid instruments where the spread and depth support their trading style.
Reducing slippage is a real alpha source for active traders, even if it sounds unglamorous. Practical steps: use limit orders for non-urgent entries rather than market orders; size your positions relative to average daily volume (never more than 1-2% of ADV in a single order); time entries and exits during peak liquidity windows (market open, power hour) rather than midday when spreads widen; use ECN-routing platforms with intelligent order routing rather than internalizers that execute at delayed prices. Tracking your average slippage per trade across your journal will quickly show whether it's a material drag on your performance that warrants process changes.