What is Slippage in Trading Here is How it Can be Avoided

Suppose you are looking to open a short (sell) position; the trade will only be executed once the market has reached your desired price or a price higher. Now, for a long (buy) position, the trade will only be executed once the market has reached your desired price or a lower price. In the forex market, this generally happens over a weekend if there are any news announcements. With stocks, on the other hand, gaps can occur from one day to the next day. Some of these significant economic events or news announcements could also cause gapping. A significant difference between the closing price and the next opening price of a financial instrument is defined as gapping.

Market Volatility

During this delay, the market price may have shifted, resulting in a trade being completed at a different price than initially expected. Slippage generally occurs within markets that are experiencing levels of high volatility and low liquidity. If a market is experiencing higher volatility, price changes will happen more rapidly and frequently. Slippage is the difference between the price at which you expected the order to be executed and the actual price at which the order was executed.

Slippage in forex trading

• Slippage is the difference between a trade’s expected price and the actual price at which the trade is executed.
• However, a premium attached to the guaranteed stop will be incurred if it is triggered.
• For instance, stock markets experience the largest trading volume while the major US exchanges like the NASDAQ and the New York Stock Exchange are open.
• Slippage is important in forex trading as it directly affects the execution of trades and impacts the total profits or losses experienced by short-term traders.

It is less of a concern for long-term investors as they are not entering and exiting positions as frequently. However, it can still affect entry and exit points, so some investors may use limit orders to define their price slippage tolerance. To manage effectively, traders need to understand how to measure and quantify it.

When Does Slippage Occur?

Slippage is the difference between the execution price of a trade and the requested price. Slippage occurs randomly in financial markets but is usually prevalent during high volatility or low liquidity periods when orders cannot be matched at their preferred price levels. Slippage leads to either profits or losses due to market fluctuations when an order is executed at a different price than expected. Slippage does not denote a negative or positive movement because any difference between the intended execution price and actual execution price qualifies as slippage. When an order is executed, the security is purchased or sold at the most favorable price offered by an exchange or other market maker. This can produce results that are more favorable, equal to, or less favorable than the intended execution price.

Order Execution Speed

As mentioned above, it can occur on any market, such as forex, individual equities, stocks, or indices, when trading CFDs. The position size of your trade can also influence the level of slippage you encounter. Larger position orders are more likely to experience slippage, as they may exceed the available volume at the desired price point. By breaking down a large order into smaller ones, traders can potentially reduce slippage, although popular short term trading strategies used by forex traders this may lead to higher trading costs overall. This is why understanding market depth and the volume of orders at different price levels is crucial for traders.

The only downside when using limit orders is if the price doesn’t reach your targeted price or better, the order won’t be executed. Requotes generally occur when you might want to close out a large position or when markets are experiencing price changes at greater speeds. When the broker is unable to complete an order at the price you requested, an execution delay takes place, and the request is returned to you at a new, generally less favourable price. One of the ways you could mitigate the risk of slippage when it comes to major news announcements or events is by looking at an economic calendar to be aware of when important news data is due for release. Or consider when an economic event such as the non-farm payroll is taking place. As mentioned above, major news announcements or economic events could cause prices to fluctuate while increasing the levels of volatility.

Slippage can impact long-term trading strategies by increasing trading costs and affecting overall profitability. Frequent or significant slippage can erode returns over time, so long-term traders must account for slippage when developing and refining their strategies. For instance, if a market order is executed at a better price than expected due to a rapid price movement in your favour, this is known as positive slippage. Slippage is common in financial markets, affecting individual investors and institutional traders.

What is Slippage in Crypto? A Beginner‘s Guide (2025 Update)

Trading during the major market hours, e.g., Asian-London overlap or London-New York overlap, reduces the risk of forex slippage because these sessions have the highest liquidity. Before the internet transformed investing, slippage due to delays was not a surprise. You used to look at a newspaper to get your prices, and then you would pick up the phone and call your broker to put in your order. They would write your order down, confirm it to you, then call or fax it to their trading department. The trading department probably had people in “The Pit” fulfilling orders.

Types of slippage explained

• Algorithmic trading systems can execute trades at a speed and frequency that is impossible for a human trader, reducing the time lag between order placement and execution.
• It occurs when the market orders could not be matched at preferred prices – usually in highly volatile and fast-moving markets prone to unexpected quick turns in certain trends.
• Due to the fast price changes, if you decide not to close the position at the new price or delay accepting the new price, the broker will withdraw the requoted price, and you’ll receive a second requoted price.

So a few cents per share of slippage has a much smaller impact on their profit margin. If slippage were to affect your positions, some brokers would still fill your orders at the worse price. IG’s best execution practices ensure that if the price moves outside of our tolerance level between the time when you placed the order and when it is executed, the order will be rejected. This protects you to some extent against the negative effects of slippage when opening or closing a position. However, if the price were to move to a better position for you, IG would fill the order at that more favourable price. One of the more common ways that slippage occurs is as a result of an abrupt change in the bid/ask spread.

Based on its track record since 2011, BTCC has established itself as a secure cryptocurrency exchange. There have been no reports of fraudulent activity involving user accounts or the platform’s infrastructure. By enforcing mandatory know-your-customer (KYC) and anti-money laundering (AML) procedures, the cryptocurrency trading platform gives consumers greater security. For operations like withdrawals, it also provides extra security features like two-factor authentication (2FA). While you see a quote for $10 (for example) the next person who is willing to sell may have a minimum price of $10.50 for her shares.

Cryptocurrency traders might experience discrepancies during periods of intense trading activity, which can cause the price of a digital asset to move sharply. The discrepancy caused by negative slippage results in reduced profit margins or total profit elimination for traders relying on short-term trading strategies. When a trader places an order, there might be a delay in execution due to high volatility or low liquidity. Slow order processing, network delays, or inadequate market depth exacerbate the negative impact of these price movements.

We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. The second thing you can do to mitigate slippage costs is to place limit orders on your trades. If there is no matching order to buy or sell at the maximum you are willing to pay or minimum you are willing to sell for, your trade will not be executed. Let’s say you place an order for 100 shares of ABC which is thinly traded.