Slippage

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.