Slippage in Day Trading
Slippage is the difference between the price a trader expects and the price at which an order is actually executed.
A simple example
Suppose a trader expects to buy near $20.00 but the order fills at an average price of $20.06. The six-cent difference is adverse slippage. Slippage can also be favorable if the execution is better than expected.
Why slippage happens
Markets move while orders are being routed and matched. Available liquidity at one price may be smaller than the order size, causing part of the order to execute at worse prices. Fast news, low liquidity, wide spreads and volatile openings can all increase execution uncertainty.
Market orders and slippage
A market order prioritizes execution rather than a specific price. In a liquid, stable market, the difference may be small. In a fast or thin market, there is no guarantee that the visible quote will hold long enough or contain enough size to fill the entire order.
Stops can slip too
A stop order typically becomes executable after its trigger condition is reached. It does not guarantee the trigger price as the final fill. Gaps and rapid moves can create substantial differences between the stop level and execution price.
Modeling slippage honestly
When testing a strategy, assuming perfect fills can exaggerate results. A more conservative process considers spread, likely slippage, fees and whether the strategy depends on entering or exiting precisely during the fastest conditions.
Common questions
Can limit orders eliminate slippage?
They can cap the worst acceptable price, but they introduce the risk of no fill or a partial fill. They do not guarantee execution.
Should backtests include slippage?
For strategies sensitive to execution, yes. Ignoring realistic spread and slippage can materially overstate historical results.
Example: average execution
A trader submits a market buy for 1,000 shares while 300 are offered at $10.00, 400 at $10.03 and 500 at $10.06. If no new liquidity appears, the order may fill across several levels, creating an average price above $10.00. That difference is part of execution slippage.
Source discipline
Market structure details can vary by security, venue, broker and order-routing arrangement. For formal rules and current exchange procedures, use primary sources such as the SEC, FINRA and the relevant listing/trading venue. See our Sources & Methodology.