Slippage is a fundamental concept; it refers to when there is a difference between the stated price at which you wish to execute your trade and the actual price your trade is executed. You will generally find slippage when the market is moving very fast and/or if there is a lack of liquidity at the time your order hits the market.
Here's an example to clarify this further. Let’s say that a trader places an order to BUY EUR/USD at 1.10000; however, by the time the order reached the market, the price had moved slightly, and the trader was filled at 1.10030. This represents a difference of 3 pips, and it's called slippage. Sometimes the trader may receive a better price, and sometimes the trader may receive a worse price. When the price that the trader was filled at was better than what they expected, it is referred to as positive slippage. Conversely, if the price that the trader was filled at is worse than what they expected, it is referred to as negative slippage.
The Cause of Slippage
There are a variety of reasons that slippage occurs, but the most significant cause is the delay between when the trader places the order to buy or sell and when that order is executed. During that short delay, there is the opportunity for the market price to change. This has the potential to be particularly prevalent when there is strong upward or downward movement in the market.
Another factor is available volume. If the exact price level you are targeting does not have enough orders on the other side, your order gets matched at the next best price. This is common during news spikes, unexpected announcements or times when the market has very few participants.
Traders usually notice slippage around major economic releases, at the opening of a session or when the day is winding down, and liquidity dries up. Prices can jump in these moments, and the market may not have enough volume to fill every order at the requested price.
Is Slippage Always a Bad Thing?
A lot of traders assume slippage only works against them. In reality, it can go either way. When the market moves in your favour during execution, and you receive a slightly better entry, that is positive slippage. When the price slips in the opposite direction and you get an unfavourable price, it becomes negative. Both outcomes are simply part of normal market behaviour, especially when conditions are unstable or liquidity is thin.
How Traders Can Manage Slippage
You cannot remove slippage entirely, but you can reduce the impact with a few practical choices.
- Keep your risk in check by using stop loss orders and avoiding unnecessary leverage.
- Do not overload a single position with a large lot size when the market cannot support it.
- Be cautious around important events because volatility tends to push prices around aggressively.
- Try not to trade during quiet hours when liquidity is known to be low.
When you need tighter control over the execution price, limit orders can offer more stability.
Final Thoughts
Slippage is simply part of trading. Every market has moments where prices jump faster than orders can be filled. By following good risk management and choosing your execution moments with care, you can keep its effect to a minimum and trade with more confidence.