83 / 97
Slippage
Working definition
The difference between the price at which a trade was expected to execute and the price at which it actually filled, signed so that positive slippage favours the trader and negative slippage costs them.
Slippage is the gap between decision and reality. The trader acts on a displayed price; the fill arrives at another. The difference has several distinct sources, and conflating them hides information. Latency contributes: the market moves in the interval between order dispatch and order arrival. Liquidity contributes: an order larger than the size available at the touch walks through deeper, worse-priced levels. Venue mechanics contribute: requotes, rejections, and hold windows such as last look convert would-have-been fills into delayed or repriced ones. Volatility amplifies all three.
Two properties of slippage deserve more scrutiny than the per-trade magnitude usually gets. The first is its aggregate weight: a per-trade cost that looks negligible compounds across every entry, exit, and stop into a first-order drag on any strategy that trades frequently, which is why slippage assumptions are among the most consequential inputs to any backtest — and among the most commonly flattered.
The second is its symmetry. In a fair execution environment, slippage should not systematically favour the venue. Prices move both ways between order and fill, so over many trades the trader should be helped roughly as often as hurt, net of spread. Symmetry is a testable property: execution records containing order timestamps, quoted prices, and fill prices are sufficient to measure whether favourable and unfavourable slippage occur at comparable rates and magnitudes. A venue that fills promptly when the interim move favours it and requotes when the move favours the client will show the signature in that distribution. Measuring it requires no accusation — only records.
Slippage is one component of total execution cost, alongside spread, fees, impact, and financing, and it interacts directly with spread widening around the events where retail orders cluster.
Commonly confused with
Neighbouring concepts that get used interchangeably, and the distinction that actually separates them.
- Spread
The spread is quoted before you act and is knowable in advance; you can decline it. Slippage is only observable after the fill, because it is the difference between the price you expected and the one you got. A cost you can see in advance and a cost you can only audit afterwards are different kinds of problem.
- Market impact
Impact is the price movement your own order causes by consuming liquidity. Slippage is the whole gap between expectation and fill, of which impact is one contributor alongside latency and venue mechanics. Attributing all slippage to impact flatters the venue; attributing none to it flatters the strategy.
- Execution cost
Execution cost is the total: spread, fees, impact, financing and slippage together. Slippage is one component of it. Reporting slippage alone as "execution cost" understates what the trade actually cost.
- Requote
A requote replaces the price before any fill exists, so there is no expected-versus-actual difference to measure. Slippage is measured on a trade that happened. A venue with heavy requoting can show clean slippage precisely because the worst prices never became fills.
How to measure it in your own data
A definition you cannot test is a definition you have to take on trust. This is the shortest honest route from the concept to a number you computed yourself.
- Records you need
Execution records containing, per order: the timestamp of dispatch, the price quoted at the moment of the decision, the price actually filled, and the side. Nothing further is required. Dispatch timestamp, fill price and side are ordinarily in an account holder's records; the price quoted at the moment of the decision is the field most often missing, and establishing whether yours is kept comes before the rest of this.
- What you compute
Take the signed difference between expected and filled price for each trade, oriented so that positive favours you and negative costs you. Then stop looking at the average, which hides the property that matters, and look at the two tails separately: how often you are helped versus hurt, and by how much in each direction.
- What the answer tells you
In a fair execution environment the two sides should be comparable, because prices move both ways in the interval between order and fill. A distribution where the venue is helped more often, or by more, than you are is the signature of an asymmetry. It is a signature, not a verdict — it tells you where to look, and it requires no accusation to produce, only records.
If this has already cost you
If fills have been going against you, the distribution — not the anecdote — is computable from your own statements.
- Execution-Cost Assay“What is my execution actually costing me?”Will not establish: Whether your broker is acting against you. Cost is measurable from your side; intent is not, and a report that claimed otherwise would be selling you a story.
- Single-Trade Investigation“What actually happened to this one trade?”Will not establish: Whether anyone owed you a better fill. One trade against one venue window measures what happened, not why — intent is not measurable from the client side — and whether the anatomy supports a complaint is a judgement for the firm or your own adviser, made with the measurement in hand rather than without it.
Intake is not open yet, so none of these can be commissioned today. They are listed here so you know the measurement exists and what it would and would not settle — the launch list hears first.
Work it out yourself
Free calculators that take this concept as an input. Each shows its working, so the number it gives you can be checked rather than taken on trust.
Questions and answers
Is slippage the same thing as the spread?
No. The spread is quoted to you before you trade and you can decline it; slippage is the difference between the price you expected and the price you received, and it only exists once a fill does. Both are components of total execution cost, but only one of them is knowable in advance.
Is slippage supposed to go against me every time?
No, and that is the most useful thing about it. Prices drift in both directions during the interval between order and fill, so across many trades you should be helped roughly as often as you are hurt, net of spread. Persistent one-sidedness is a property worth measuring rather than a cost of doing business.
Why is stop-loss slippage worse than slippage on my entries?
Because of what a stop is. A stop-loss rests dormant until price reaches it, then converts to a market order — so it executes, by construction, at moments when price is moving through a level, which is precisely when quotes are thinnest and fastest. An entry you time yourself can wait for calm conditions; a triggered stop cannot. That makes stop fills the natural worst case in any slippage distribution, and a reason to measure them as their own population rather than averaged in with everything else.
Why does slippage matter so much to a backtest?
Because it compounds. A per-trade cost small enough to look negligible is applied to every entry, every exit and every stop, which makes the slippage assumption one of the most consequential inputs to any frequently-trading strategy — and one of the most commonly flattered, because the person choosing the assumption is usually the person hoping the strategy works.
Can slippage data alone prove a broker is mistreating me?
Slippage data cannot prove intent, and claiming otherwise would be dishonest. What execution records can establish is whether favourable and unfavourable slippage occur at comparable rates and magnitudes. An asymmetric distribution is evidence that something systematic is happening; explaining why is a separate question, and one your counterparty may have a reasonable answer to.
Related terms
Derived from the links this entry makes and the entries that link back to it.
Where the term is used
Instrument pages whose published copy uses this term. Each page states what it measures and what it does not establish.
In the research
Slippage comes up in eight research notes on this site, and this entry lists three of them.