What is slippage and how to avoid it?

Slippage occurs when a trade executes at a different price than the one requested. This typically happens during periods of high market volatility or low liquidity. If a trader places a market order to buy an asset at $100, but the price moves to $100.05 before the order fills, the $0.05 difference is the slippage. It often affects large orders that exceed the available volume at the best bid or ask price. To minimize slippage, use limit orders instead of market orders. A limit order guarantees the execution price or better, ensuring you do not pay more than your specified limit. Traders can also avoid volatile periods, such as major economic news releases, when price gaps are more frequent. Trading during hours with high market volume, such as the overlap between the London and New York sessions, provides deeper liquidity and reduces the likelihood of significant price movement between order placement and execution. Be aware that trading involves substantial risk. While these strategies help manage execution costs, they do not eliminate the possibility of loss. Always monitor market conditions and use appropriate risk management tools like stop-loss orders to protect capital.