What is slippage
in trading?
You place a trade and a stop order. When the stop triggers, the actual loss is greater than planned. How can that happen, and what should you consider when choosing an order?
A chart gap can contribute to slippage. The decisive difference is between the expected and actual fill price.Image: TradeNeon
Your fill follows the market.
Imagine this: you spot an attractive trading setup, place your entry order and then a stop order, perhaps also a target order. The trade is opened. Now you wait.
Then a notification arrives: your stop has triggered. The actual loss is higher than the amount you calculated when placing the order. How could that happen? One possible cause is slippageSlippage is the difference between an order's expected execution price and the price actually received. Fees are separate trading costs.. This article explains when it arises and how to account for the risk when choosing an order.
With a standard stop-market order, the stop price is a trigger, not a guaranteed fill price. A limit order sets a price boundary but may remain unfilled. Slippage can also work in your favour.
What is slippage?
Slippage is the difference between an order's expected execution price and the price actually received. You click buy or sell, but the execution price differs from the one you expected. Buying at €101 rather than the expected €100 is unfavourable; buying at €99 is favourable. For a sale, the assessment reverses.
The difference can occur with market orders and triggered stop-market orders. A displayed quote is no promise for your next order. A wide spread and fees also affect your result, but they are distinct from the difference between expected and actual execution price.
Market orderA market order seeks execution at the next available market price. Its final fill may differ from the last price you saw.
You ask to buy or sell at the next available price. If little opposing volume is available, the order may reach several price levels. You do not set a fixed price.
Limit orderA buy limit executes only at the limit price or lower; a sell limit only at the limit price or higher. Execution is not guaranteed.
You set the most you will pay to buy or the least you will accept to sell. The fill can be better for you, but the order may also remain open.
Stop orderA standard stop-market order becomes a market order when its stop price is reached. The stop price does not guarantee the execution price.
A stop can protect an existing position or trigger an entry. A standard stop-market order becomes a market order after triggering. A stop-limit activates a limit order instead and may remain unfilled.
Check your broker's rules for its stop variants and trigger conditions. FINRA explains the order types and their different risks.
When does slippage occur?
Slippage becomes more likely when prices move fast or few opposing orders are available. If many market orders or triggered stops meet limited liquidity at the same time, they may pass through several price levels in the order book. Traders often call this rapid consumption of available orders a sweep. High volatilityVolatility describes how much the price of a market or security fluctuates over a given period. It measures the size of price moves, not their direction. and low market liquidityMarket liquidity describes how easily an instrument can be traded without one order moving its price sharply. can amplify it.
Four trading situations make the risk concrete:
- Triggered stop orders: Once triggered, a standard stop-market order seeks the next available price. In a fast market, the fill may be far from the stop price.
- News events: Central bank decisions and economic data can trigger many orders at once. The direction and size of the move are unknown in advance.
- Breakouts and stop runs: Orders may cluster around notable highs and lows. When the level trades, the market can move through several price levels quickly.
- Large limit orders: If visible liquidity at one price is used up, subsequent order volume may meet the next price level instead.
A gapA gap is a visible discontinuity between two consecutive traded price areas on a chart. is a visible price discontinuity on a chart. If your stop lies in the skipped area, the next available execution price may be beyond it. A gap can cause slippage; slippage can also occur without a gap.
How can you limit the risk?
Your order choice and preparation can help limit unwanted price differences. They cannot eliminate slippage altogether.
- Consider a limit on entry: If filled, a limit prevents a price worse than your boundary. If the market never reaches it, you do not enter. With a protective stop-limit, remaining in the position can be the greater risk.
- Watch liquidity: Check the spread, trading hours and available opposing orders. Even usually liquid markets can become thin after news or outside main trading hours.
- Assess notable price levels: Daily and weekly highs and lows, or areas where many stops may sit, can coincide with fast moves. You can watch these areas but cannot reliably predict the move or your fill.
- Use a news calendar: Scheduled releases are known; the market reaction is not. Decide in advance whether to trade and what position size you can bear during that period.
Do not move a stop solely because you think fewer other orders are clustered elsewhere. Its level must fit your trade idea and a loss you can bear. A stop-market order is not a fixed cap on losses.
What does this mean for your loss plan?
You buy 100 units at €105 and set a stop at €100. The planned price loss is €500, plus costs. After a news release, the market opens at €98 and the triggered stop-market order fills there. The price loss is now €700. The extra €200 is the difference from the stop plan. This is an illustration, not a typical fill.
For futures, options and leveraged products, contract value and product-specific risks also matter. The position-size calculator helps you check the planned distance and position size; it cannot rule out a worse actual fill.
Accept or avoid slippage?
Slippage is one of the risks of order execution. You can weigh execution probability against a price boundary, prefer liquid trading hours and account for scheduled news. None of this promises a particular fill.
Record the expected price, actual fill and market conditions for your trades. This can show whether your execution assumptions were too optimistic. Plan a position size that you can bear even if the fill is worse than expected.
Is slippage always a loss?
No. The actual price can be better or worse for your order. Whether that is favourable depends on the direction of your trade and the market move.
Does a limit order eliminate slippage completely?
If filled, it prevents a price worse than your limit. It does not guarantee a fill; an open position or missed entry may pose the greater risk.
Is a price gap the same as slippage?
No. A gap is a discontinuity visible on a chart. Slippage is the difference between an expected and an actual fill price. A gap can contribute to slippage.
Does a stop guarantee my maximum loss?
A standard stop-market order does not guarantee the stop price as a fill. Fast markets and gaps can move the actual execution price beyond it.