What is slippage in trading?

Slippage occurs when a trade executes at a different price than the one requested by the trader. This phenomenon typically happens during periods of high market volatility or low liquidity. When a market order is placed, the system seeks the best available price. If the market moves rapidly between the moment the order is sent and the moment it is filled, the final execution price deviates from the expected level. For example, if you place a buy order for a stock at $100.00 but the market shifts instantly due to a sudden influx of orders, your trade might execute at $100.05. This difference of $0.05 represents negative slippage. Conversely, positive slippage can occur when an order fills at a better price than expected, though this is less common during fast-moving markets. Slippage is most frequent in assets with low trading volume or during major economic news releases. Traders often use limit orders to mitigate this risk, as these orders guarantee a specific price or better. However, limit orders do not guarantee that the trade will execute at all. Trading involves significant financial risk, and market participants should account for potential slippage when calculating their entry and exit strategies.