What is slippage and how to reduce it
Slippage is the difference between the price you wanted to enter or exit at and the actual price your order executed at. It\'s an invisible cost that, poorly managed, can eat part of your profits. Understanding it helps you trade better.
What it is exactly
When you send a market order, you expect to execute at one price, but the market moves in that instant and you execute at a slightly different one: that\'s slippage. It can be in your favour (rare) or against you (usual in moments of haste or low liquidity). It\'s especially notable in fast moves.
Why it happens
Slippage appears when there isn\'t enough liquidity at the exact price you asked, or when price moves very fast. It happens mainly in: news moments (blown-out spreads), illiquid assets, and large orders that "sweep" several price levels. In a calm, liquid market, slippage is minimal.
How to reduce it
Several practical ways: avoid trading in the seconds of important news (maximum slippage); trade liquid assets (major pairs, large indices) with abundant counterparty; use limit orders when you want price control (though they may not fill); and avoid huge sizes in shallow markets.
Slippage on the stop loss
An important nuance: in a gap or violent move, your stop loss executes at the first available price, which can be worse than your level (stop slippage). That\'s why, besides the stop, the per-trade risk rule is your final net: even if the stop suffers slippage, the loss stays bounded if you sized well.
Where to start
Don\'t obsess, but be aware: avoid trading at the exact news moment, prioritise liquid assets, and don\'t assume you\'ll always execute at the exact price you see. Including slippage (and the spread) in your calculations means your real profitability won\'t surprise you.