Slippage happens when an order fills at a worse price than intended. Market orders and stop-market orders are the most exposed, because they take whatever liquidity is there when they execute. It grows with order size, low liquidity and volatility, and it is usually worst around news releases, liquidation cascades and the opening of major sessions.
Example
You short a small-cap token at $2.30 with a stop-market at $2.40, holding 10,000 tokens, so the planned loss is $1,000. A sudden spike triggers the stop at $2.40, but the book above is thin and the order fills at an average of $2.46. The loss is $1,600: $600 of slippage, or 0.6R on a trade sized to risk 1R.
Why it matters
Slippage is a hidden cost that backtests often ignore. On short timeframes with tight stops it can be a large share of each trade's risk. Logging expected versus actual fills in a journal shows whether your execution, rather than your strategy, is the problem.
Common mistake
Placing large market orders or tight stop-markets in illiquid coins, then blaming the setup when losses come in bigger than planned. Size positions to the market's liquidity, not just to your account.
Put it into practice
- Free toolPnL & R-multiple calculatorWork out gross and net PnL of a long or short after maker and taker fees, the ROE on your margin at any leverage and the trade's R-multiple.
- In FlowsenseEconomic calendarUpcoming high-impact releases such as inflation, rate decisions and jobs data, with a push alert 15 minutes before each one.
FAQ
- Can slippage be positive?
- Yes. If price moves in your favour between sending the order and the fill, you get a better price. On average, though, market orders pay slippage rather than receive it.
- How do I reduce slippage?
- Use limit orders where you can, trade liquid pairs at active hours, avoid the moments around major news and keep your order size small relative to the visible depth.
- Should backtests include slippage?
- Yes. Adding a realistic cost per trade, a few basis points on liquid pairs and more on small caps, brings results closer to live trading.