What Is Slippage in Trading and How to Reduce It
Slippage is the difference between the price you expected on a trade and the price you actually received. If you place a market order to buy at $100 and get filled at $100.15, that $0.15 difference is slippage. It happens because prices change in the milliseconds between placing your order and its execution, especially in fast-moving or low-liquidity markets.
Why Slippage Happens
Slippage occurs for three main reasons. First, market volatility: during news releases or sudden price moves, prices can jump multiple ticks between your click and the fill. Second, low liquidity: if there are not enough orders at your price level, your order eats through the order book and fills at progressively worse prices. Third, execution speed: slower connections or platforms introduce more time for prices to change.
Even a few cents of slippage per trade adds up. If you make 10 trades a day with $0.10 average slippage, that is $1.00 per day in hidden costs, or roughly $250 per year.
How to Reduce Slippage
Trade liquid markets. Instruments like ES futures, major forex pairs (EUR/USD, GBP/USD), and large-cap stocks have tight spreads and deep order books. Slippage on these is typically minimal.
Avoid trading during news events. Major economic releases (NFP, FOMC, CPI) cause volatility spikes where slippage can be extreme. If you are not specifically trading the news, step aside during these windows.
Use limit orders for entries. Instead of market orders, use limit orders to specify the maximum price you will pay. You might miss some entries, but you will never get a worse price than intended.
Check your execution setup. A direct connection to the exchange or a quality VPS close to the data center reduces latency. This matters most for scalping strategies where every tick counts.
Slippage in Prop Firm Accounts
If you trade with a prop firm, slippage can directly affect your profitability and your ability to stay within drawdown limits. Some prop firms route orders through different liquidity providers, which can result in more or less slippage than your personal brokerage account. Test execution quality during your evaluation phase.
Key Takeaways
- Slippage is the difference between expected and actual fill price
- It is caused by volatility, low liquidity, and execution delays
- Trading liquid markets during normal hours minimizes slippage
- Limit orders eliminate negative slippage on entries
- Small per-trade slippage compounds into significant annual costs
Frequently Asked Questions
Is slippage always bad? No. Positive slippage happens when you get a better price than expected. However, negative slippage is more common and more impactful over time.
Does slippage happen with limit orders? Limit orders protect you from negative slippage since they only fill at your price or better. However, stop loss orders that convert to market orders can experience slippage.
How much slippage is normal? In liquid markets like ES futures, slippage of 1 tick or less is typical. In less liquid instruments or during volatile periods, slippage of several ticks or more is possible.
Risk Disclaimer: Trading involves substantial risk of loss. Past performance is not indicative of future results. See our full risk disclaimer.