Slippage
The difference between the expected price of a trade and the actual price at which the trade is executed, usually caused by market movement or low liquidity.
What is Slippage?
Slippage occurs when a trade is executed at a different price than expected, typically to the trader's disadvantage. It arises because markets move continuously: between the time an order is submitted and the time it is filled, the price may shift. Slippage is most common with market orders during periods of high volatility or low liquidity, when the bid-ask spread widens and large orders may exhaust available supply at the quoted price, forcing partial fills at progressively worse prices. Institutional traders use limit orders, algorithmic execution, and smart order routing to minimize slippage. Positive slippage — executing at a better price than expected — can also occur but is less common.
Example
A trader places a market order to buy 1,000 shares of a small-cap stock quoted at $20.00. Due to limited liquidity, 500 shares fill at $20.00, 300 at $20.05, and 200 at $20.12. The average execution price is $20.04, so the trader experiences $0.04 per share of slippage, totaling $40 in unexpected cost.