Slippage
The difference between the expected price of a trade and the actual price at which it is executed.
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Explained Simply
Slippage occurs when the market moves between the time you place an order and when it gets filled. If you submit a market order to buy at $50.00 but get filled at $50.08, you experienced $0.08 of slippage. Slippage is most common during high volatility, fast-moving markets, large orders relative to available liquidity, and around major news events. It can work in your favor (positive slippage) or against you (negative slippage), but on average it tends to cost traders money. Limit orders can prevent slippage but risk not getting filled at all. Slippage is one of the key reasons why backtested strategies often perform worse in live trading — backtests typically assume perfect fills at the quoted price.
How to Reduce Slippage
Slippage eats into profits over time. Here are practical strategies to minimize it:
Use limit orders for entries: Instead of buying at market, place a limit buy at or slightly above the current ask. This caps your maximum entry price. If the stock moves away before your limit fills, let it go — chasing with market orders is how slippage compounds.
Trade liquid stocks: Stocks with average daily volume above 1 million shares and tight bid-ask spreads ($0.01-$0.03) have minimal slippage on typical retail order sizes (100-5,000 shares).
Avoid trading around catalysts: Slippage spikes during earnings announcements, FOMC decisions, and breaking news because price moves faster than orders can execute. If you must trade during these events, reduce position sizes.
Size appropriately: If your order is more than 1-2% of the stock's average daily volume, you will likely move the price with your order. Break large orders into smaller pieces using TWAP (time-weighted) or VWAP (volume-weighted) algorithms.
Account for slippage in backtests: When evaluating strategy performance, subtract a realistic slippage estimate (0.5-1 cent per share for liquid stocks, 2-5 cents for less liquid ones). Strategies that are profitable on paper but barely break even after slippage should not be traded live.
How to Use Slippage
- 1
Measure Your Slippage
Slippage = Actual Fill Price - Expected Fill Price. Track this for every trade. If you expected to buy at $50.00 but filled at $50.08, that's $0.08 of slippage, or 0.16%. Calculate your monthly slippage cost — it's often larger than commissions.
- 2
Use Limit Orders to Eliminate Slippage
Limit orders guarantee your maximum price — you'll never experience slippage on a limit order. The tradeoff is that you might not get filled. For non-urgent entries, always use limits. Only use market orders when speed of execution matters more than price.
- 3
Trade High-Liquidity Stocks
Slippage is worst on low-volume stocks with wide bid-ask spreads. Stick to stocks with 500K+ daily volume and spreads under $0.05. On these stocks, market orders typically execute within $0.01-0.02 of the displayed price.
- 4
Reduce Order Size on Thin Stocks
If you must trade a low-liquidity stock, break large orders into smaller pieces. Instead of buying 5,000 shares at once, use 5 orders of 1,000. Each smaller order has less market impact and less slippage.
- 5
Avoid Trading During High-Slippage Periods
Slippage is highest at market open (9:30-9:35 AM), during news events, and around economic data releases. If possible, wait 5-10 minutes after the open for spreads to stabilize. Avoid market orders during fast-moving sell-offs.
Frequently Asked Questions
What is slippage in trading?
Slippage is the difference between the price you expect to pay (or receive) and the actual execution price. If you place a market order to buy at $50.00 but get filled at $50.05, you experienced $0.05 of negative slippage. Slippage occurs because prices change between the moment you submit your order and the moment it reaches the exchange and gets matched with a counterparty.
How much slippage is normal?
For liquid stocks (AAPL, NVDA, SPY) with tight spreads, slippage is typically $0.01-$0.03 per share on market orders. For less liquid stocks (small-caps, low-volume names), slippage can be $0.05-$0.25+. During volatile events (earnings, FOMC), slippage on any stock can increase 5-10x from normal levels. Options typically have higher slippage than stocks due to wider bid-ask spreads.
Is slippage always bad?
No. Slippage can be positive (getting a better price than expected) or negative (getting a worse price). However, over many trades, slippage tends to be slightly negative on average because of the bid-ask spread and the time delay between order submission and execution. Limit orders eliminate negative slippage entirely but may not fill if the price moves away from your limit.
How Tradewink Uses Slippage
Tradewink's PositionSizer includes a slippage model that estimates expected slippage based on the stock's average spread, current volatility, and order size relative to average volume. This cost is deducted from the expected profit calculation before sizing the position. The SmartExecutor minimizes slippage by using VWAP and TWAP algorithms to slice large orders into smaller pieces, reducing market impact.
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See Slippage in real trade signals
Tradewink uses slippage as part of its AI signal pipeline. Get daily trade ideas with full analysis — free to start.