Slippage

What Is Slippage?

Slippage refers to the difference between the expected and the actual execution price of an order. It occurs when the market moves between the time an order is placed and when it is actually executed, or when insufficient liquidity is available at the desired price.

Slippage can be both positive (better price than expected) and negative (worse price than expected). In practice, however, negative slippage tends to prevail, as traders typically trade in the direction of the current market movement.

Why Does Slippage Occur?

Slippage has several causes that often interact:

Market Volatility

In fast-moving markets — such as during news releases or sudden order flow spikes — prices move so quickly that the price shifts between order submission and execution. The higher the volatility, the greater the potential slippage.

Low Liquidity

When the order book lacks sufficient volume at the desired price level, a market order is filled across multiple price levels. A market buy order takes the cheapest offer first, then the next higher one, and so on until the entire order size is filled.

Order Size

Larger orders tend to generate more slippage because they absorb more liquidity from the order book. A trader buying 50 contracts with a market order will typically experience more slippage than one buying a single contract.

Order Type

Market orders are most susceptible to slippage because they execute at the best available price — regardless of where that is. Limit orders prevent slippage above (for buys) or below (for sells) a specified price, but carry the risk of not being filled.

Slippage Across Different Markets

The magnitude of slippage varies significantly by market:

• Highly liquid futures (ES, NQ): Slippage often just 1 tick or less under normal conditions
• Less liquid futures (commodities, interest rate futures): Slippage of 2-5 ticks possible
• Low-volume stocks: Slippage can be substantial, especially with larger orders
• During news events: Slippage can spike dramatically across all markets

Measuring and Tracking Slippage

Professional traders measure their slippage systematically:

Slippage = Actual Execution Price - Expected Price

Cumulative slippage over many trades can have a significant impact on overall performance. A trader placing 10 trades per day with an average of 1 tick of negative slippage loses a significant amount over a year from slippage alone.

How to Minimize Slippage

Several approaches help reduce slippage:

• Use limit orders: Guarantee a maximum buy price or minimum sell price
• Trade liquid markets: Markets with high volume and tight spreads produce less slippage
• Avoid news periods: The greatest slippage occurs around major data releases
• Adjust position size: Smaller positions create less market impact
• Stop-limit instead of stop-market: Stop-limit orders cap maximum slippage on stops, but carry the risk of non-execution

FAQ

Is slippage always bad?

No. Slippage can also be positive when an order is filled at a better price than expected. On average, however, negative slippage predominates with market orders.

How much slippage is normal?

In highly liquid futures like the E-Mini S&P 500, slippage of 0-1 tick is typical under normal conditions. In less liquid markets or during news events, several ticks can occur.

Can I completely avoid slippage?

By exclusively using limit orders, slippage can be eliminated. The downside is that limit orders are not always filled, which means traders may miss trading opportunities.