Slippage
The difference between the price you expected and the price you actually got.
Also called: slip · bad fill
Written by Javier Sánchez Ros
In plain language
Slippage happens when the market moves, or the book thins out, between your decision and your fill. It can go in your favor, but it usually does not.
It is worst exactly where it hurts most: on stop orders during fast moves. A stop is a trigger, not a guarantee, and once triggered it becomes a market order that takes whatever is available.
Gaps are slippage in its most extreme form. If an instrument closes at $50 and opens at $42, a stop at $48 fills near $42.
Worked through
A $250 planned loss that costs $312
- Position
- 500 shares
- Stop
- $18.60
- Actual fill
- $18.4757
- Loss
- $312 instead of $250
Twelve cents of slippage on an eighteen-dollar stock is unremarkable, and it made the loss 25% bigger than the number the position was sized from. Nothing went wrong; the stop simply became a market order in a moment when the book was moving.
This is the gap between a risk model and the market. Every position size calculation assumes the stop fills at the stop, and it never quite does — sometimes by a cent, occasionally by a great deal more.
The correct response is not a tighter stop, which makes slippage a larger share of a smaller distance. It is to keep per-trade risk modest enough that a 25% overrun is an irritation rather than an event, and to expect it as normal rather than treat each instance as bad luck.
Slippage is also not random in its timing. It is smallest in calm, liquid conditions and largest on gaps, news and fast moves — which is to say, on the trades where the stop actually gets used.
Why it matters
Your calculated maximum risk assumes the stop fills at the stop price. Slippage is the gap between that assumption and reality, and it is the main reason to keep per-trade risk modest.
Common mistakes
- Believing a stop loss caps risk at exactly the stop price.
- Holding through scheduled events like earnings with a tight stop that a gap can leap over.
- Using market orders in thin conditions when a limit order would do.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A predefined exit that closes a losing trade before the loss becomes serious.
How easily an asset can be bought or sold without moving its price.
The gap between the bid and the ask — the built-in cost of entering a trade.
A jump between one period’s close and the next period’s open with no trading in between.
An instruction to buy or sell immediately at the best price currently available.