- Slippage is the difference between the expected price and the executed price of an order, and it happens to all traders.
- Market orders trade immediately but can create large slippage in fast markets or thinly traded stocks.
- Limit orders give price control but can leave you unfilled; smart use of time and order type reduces execution risk.
- You can cut slippage by trading liquid names like $AAPL or $SPY, avoiding opening and closing minutes, and using limit or algorithmic orders.
- Measure slippage in dollars and percent to understand real trading costs and improve your execution over time.
Slippage is the gap between the price you expect to receive and the price you actually receive when your trade fills. It's a normal part of trading and happens on every exchange and asset class. Understanding slippage helps you control trading costs and set realistic expectations for order execution.
Why should you care about slippage? Even small differences can erode returns when you trade often or use high leverage. Do you want to know how to recognize slippage, quantify it, and reduce it when you place trades? This article walks you through simple definitions, real examples, and practical steps you can apply right away.
What is slippage?
Slippage is the difference between the price you expect to get when you submit an order and the price at which the order actually executes. Expected price can mean the last traded price, the midpoint of the bid-ask spread, or the order entry price shown in your platform. Execution price is the actual price your broker reports when the trade completes.
How to calculate slippage
Slippage can be measured in dollars or percentage. Use this simple math:
- Dollar slippage = (Execution price - Expected price) × Shares
- Percent slippage = (Execution price - Expected price) / Expected price × 100
Example: You place a market buy for 100 shares of $AAPL when the last traded price is $170.00, but the order fills at $170.10. Dollar slippage is $0.10 × 100 = $10. Percent slippage is 0.058%.
Why slippage happens
Slippage arises because markets move, and orders take time to execute. Several common causes explain why the price you see isn't always the price you get.
Fast markets and volatility
When news breaks or the market moves quickly, prices can change between the moment you click buy and the trade execution. Volatile stocks like $TSLA can jump several dollars in minutes, increasing the chance of slippage.
Thin liquidity and wide spreads
Stocks with low trading volume have fewer buyers and sellers at each price level. The bid-ask spread can be wide, so a market order can sweep multiple price levels and fill well away from the last traded price. Small-cap or penny stocks and some OTC listings are classic examples.
Order size and depth of book
Large orders can move through the order book and execute at progressively worse prices. If you place a market buy for 10,000 shares of a lightly traded name, your order will take the available shares at the best prices, then move to higher offers, increasing slippage.
Exchange routing and latency
Your broker routes orders to exchanges and liquidity providers. In some situations, routing delays or different execution venues can change the fill price. This is more relevant to high-frequency or institutional trading but something retail traders should be aware of.
How to reduce slippage
You can't eliminate slippage, but you can reduce it with order type choices, timing, and trade sizing. Below are practical techniques you can use today.
Use limit orders when price certainty matters
A limit order sets the maximum price you will pay to buy or the minimum you will accept to sell. It gives you price control and prevents unexpected fills above or below your target. Keep in mind that limit orders may not fill if the market moves away from your price.
Example: If $TSLA is quoted at $210.00 by the last trade and you want to buy, a buy limit at $210.20 will ensure you do not pay more than $210.20. If the price jumps to $212 before your order executes, you remain unfilled rather than taking the higher price.
Choose execution-friendly times
The first 15 minutes after the market opens and the last 15 minutes before it closes are often the most volatile. Avoiding these windows can reduce slippage, especially for less liquid names. Midday tends to be calmer and deeper for many large-cap stocks like $AAPL and $MSFT.
Trade liquid names or smaller sizes
One easy way to cut slippage is to trade highly liquid instruments such as $SPY or $QQQ or to reduce the size of your order. If you need to buy a large position, split it into smaller orders over time to avoid sweeping the order book.
Consider algorithmic and limit-on-fill orders
Many brokers offer algorithms like VWAP or TWAP that slice large orders into smaller pieces and execute over time. These tools aim to reduce market impact and slippage. Limit-on-fill or pegged-to-mid orders can also offer a balance between execution certainty and price control.
Real-World Examples
Examples make slippage tangible. Below are three realistic scenarios you may encounter as a new trader.
Example 1: Market order in a liquid stock
You place a market buy for 100 shares of $AAPL while it last traded at $170.00. A market order typically fills at the best available ask, which may be $170.02. Slippage is $0.02 per share, or $2 total, a small cost equal to 0.012% of trade value. For large-cap stocks, slippage is often just a few cents per share.
Example 2: Market order in a thin stock
You place a market buy for 1,000 shares of a small-cap name that last traded at $5.00, with the best ask showing 200 shares at $5.00 and 500 shares at $5.50. Your market order fills the 200 shares at $5.00, then the next 500 at $5.50, and the remainder at $6.00. Average execution might be around $5.70, creating large slippage versus the expected $5.00. This is why market orders are risky in thinly traded stocks.
Example 3: Volatile news event
Company XYZ reports earnings and the stock spikes from $20 to $25 within minutes. If you submit a market buy when the last trade shown was $20, the market may have already moved and you could pay $24.50. Using a buy limit close to the current displayed price or waiting until the volatility subsides can prevent dramatic slippage.
Common Mistakes to Avoid
- Always using market orders: Market orders guarantee execution speed but not price. Use them only when immediate fill is more important than price certainty.
- Ignoring liquidity: Trading thin stocks without checking volume and spread invites large slippage. Look at average volume and the current bid-ask spread before trading.
- Placing too large an order at once: Large single orders can eat through multiple price levels. Split big trades or use broker algorithms to reduce impact.
- Trading during peak volatility without a plan: News-driven volatility increases slippage risk. Consider waiting or using limit orders during these times.
- Not tracking your execution performance: If you never measure slippage, you can't improve. Review your fill prices versus expected prices to learn and adjust.
FAQ
Q: What is the difference between market order and limit order?
A: A market order executes immediately at the best available price, which can cause slippage. A limit order sets a maximum buy or minimum sell price, preventing execution beyond that price but possibly leaving you unfilled.
Q: How big is slippage for large-cap stocks?
A: For very liquid large-cap stocks like $AAPL or $MSFT, slippage is often a few cents per share or well under 0.1% for small orders. It can still grow for large orders or during volatile moments.
Q: Can slippage be negative?
A: Yes. Negative slippage happens when your execution is better than the expected price, for example buying below the last traded price or selling above it. You can profit from favorable fills occasionally, but don't assume it will offset costs.
Q: How do I measure slippage in my trading account?
A: Compare the execution price on your trade confirmations to the price you expected at order entry or the midpoint at that time. Track dollar and percent slippage over many trades to see patterns and improve execution.
Bottom Line
Slippage is a normal cost of trading that comes from market movement, limited liquidity, order size, and timing. You can limit its impact by using limit orders when price matters, trading liquid names or smaller sizes, and avoiding the most volatile market windows.
Start by tracking your own slippage for a month to see where it comes from. Try a mix of limit and algorithmic orders and note which approaches lower your execution costs. At the end of the day, small improvements in execution add up to meaningful savings over time.
