Slippage

Slippage happens because prices can move between the time an order is placed and when it is filled, or because there are not enough orders at the expected price to fill the whole trade.

For example, an investor places an order to buy 10,000 shares when the quoted price is 50.00. Because there are not enough shares on offer at that price, the order fills at an average price of 50.12. The slippage is 0.12 per share, or 1,200 in total.

Slippage is more likely in fast-moving or volatile markets, for large orders relative to market depth, for securities that trade infrequently and around major news events.

It can be negative, costing the investor, or occasionally positive, if the price moves favourably. Investors can reduce slippage by using limit orders, which set a maximum buying or minimum selling price, trading when markets are most liquid, splitting large orders and using execution algorithms. Slippage is a hidden trading cost that matters especially for frequent traders.