Why doesn't it execute at the specified price? The basics of slippage

I placed an order at the price I was seeing on the screen, but the execution price was a little off. When I hit stop-loss, it settled slightly ahead of the specified price. Such slippage is called "slippage."

This time, we will整理 (explain) why slippage occurs and which orders are prone to it.

What is slippage

Slippage is the difference between the price at the time the order was placed and the price at which the order actually executed.

• If it moves unfavorably: buy executes higher, sell executes lower
• If it moves favorably: buy executes lower, sell executes higher

It can happen in either direction. Unfavorable slippage tends to be seen as the problem, but favorable slippage can also occur.

Why does it move

There is a short time between when the order is placed and when it is executed. If the price moves during that time, the execution price may differ.

• When the market is moving quickly (around important economic data releases, etc.)
• During times of low liquidity when there are fewer participants
• When the connection quality or the distance to the broker's servers affects the order

Which orders are more prone

• Market orders: since they execute at the current price, slippage tends to occur
• Stop orders and take-profit orders: when the specified price is reached, they may execute close to market, causing slippage
• Limit orders: since they execute at the specified price or a more favorable price, unfavorable slippage is generally unlikely. However, if the price does not reach the level, the order may not fill

Concrete example (dummy numbers)

If you have a stop loss at 149.800 for a long position and the market falls sharply and executes at 149.780, there is a difference of 0.02 (2 pips). The loss amount becomes slightly larger than planned.

Approach to mitigation

You cannot completely eliminate slippage. With that in mind, consider the following precautions:

• Avoid trading or reduce lot size around major indicator releases
• Understand in advance the trading conditions during periods of low liquidity
• When calculating potential losses, incorporate some degree of slippage

Important points

The occurrence of slippage depends on the broker's execution method, the instrument, and market conditions. Conditions that worked well before may not work the same way this time.

Summary

Slippage is “the amount of price movement between the order and its execution.” Knowing that it tends to occur with market orders and stop-loss orders helps you build a cushion in estimating potential losses.