What Is Slippage in Trading and When Does It Occur Most

Slippage is the difference between the price you expected to transact at and the price you actually received. It is one of the most common sources of hidden costs in active trading and one of the least examined by traders who focus on entry signals rather than execution mechanics.

A Clear Definition

When you place a market order, you instruct the broker to fill it at the best available price immediately. The price you see on screen when you place the order may not be the price at which the order is filled. If the price moves between the moment you submit the order and the moment it reaches the execution venue, the fill comes back at the new price rather than the original one.

That difference is slippage. If you intended to buy EUR/USD at 1.08500 and the order fills at 1.08508, the slippage is 0.8 pips against you. If the order fills at 1.08494, the slippage is 0.6 pips in your favour. Slippage can run in either direction, though in practice, most retail traders accumulate more negative slippage than positive over time, as explained below.

When Slippage Occurs Most

Slippage is not uniformly distributed across all trading activity. It concentrates on specific conditions that are predictable enough to plan around.

During major economic data releases. Non-Farm Payrolls, CPI, central bank rate decisions, and GDP releases can move markets 20 to 40 pips or more within the first second of publication. An order submitted in that window is processed while the price is already moving. The fill comes back at whatever the price is when the order is matched, which may be materially different from the price at the moment of submission. This is the single most common context in which retail traders experience significant slippage.

During the gap opens. When markets reopen after a weekend or an extended closure, prices gap to reflect news that developed while the market was closed. Any orders held through the gap, including stop-loss orders, are filled at the first available price after the market reopens. If that price is far from the stop price, the fill can be materially worse than expected.

In thin or low-liquidity conditions. During the Asian session, in the final minutes of a trading day, or on instruments with naturally lower trading volume, the order book is shallower at any given price level. A market order that exceeds the available volume at the quoted price moves through the order book to find additional volume at progressively worse prices. The result is an average fill that is worse than the initial quote.

On instruments with wide spreads. Less liquid instruments, such as minor currency pairs, exotic market CFDs, and single-stock CFDs in smaller companies, carry wider spreads and more variable execution quality. Slippage on these instruments tends to be larger and less predictable than on major pairs and benchmark index CFDs during normal conditions.

Positive and Negative Slippage

Slippage can be favourable or unfavourable. A market order that fills at a better price than the one visible at submission is positive slippage. One that fills at a worse price is negative slippage.

In a world where price movement between order submission and fill was entirely random, positive and negative slippage would occur with similar frequency. In practice, negative slippage tends to dominate in retail trading for a structural reason: the conditions that generate significant slippage are fast-moving, directional markets. If you are long and the market is falling fast enough to generate slippage on your stop-loss order, the slippage is by definition negative. The conditions that produce large slippage and the conditions that produce negative slippage for a given position overlap substantially.

There is also a broker-related dimension. Some execution models handle price improvements, where the fill would be better than the submission price, differently from how they handle adverse moves. Whether positive slippage is passed to the client or retained within the broker’s execution system depends on the model. The execution policy document that FCA-authorised brokers are required to publish describes how fills are handled when the price moves between submission and execution.

How to Reduce Slippage Exposure

Slippage cannot be eliminated in live markets, but its impact can be managed through deliberate choices about when and how orders are placed.

Avoid market orders immediately around scheduled high-impact events. If the trade does not depend on the release itself, waiting for the initial volatility to subside, typically one to three minutes after a major release, produces more predictable fills. The cost of waiting can be a different entry price. The benefit is the avoidance of the window in which slippage is most significant.

Use guaranteed stop-loss orders for positions held through high-risk windows. A guaranteed stop fills at exactly the nominated price regardless of market conditions, eliminating slippage on the exit at the cost of a premium. For positions held through scheduled events where gap risk is elevated, the premium may be worth paying. For a fuller analysis of when the premium is justified, see Understanding Slippage in Fast Markets.

Choose an execution environment with low slippage under stress. The broker’s infrastructure, liquidity relationships, and execution model all determine how consistently fills match quoted prices across different market conditions. Execution quality is most distinguishable between brokers during volatile conditions, when slippage is highest. Reviewing a broker’s execution policy and, where available, execution statistics provides a basis for assessment that headline spread comparisons do not.

The Bottom Line

Slippage is the difference between the price you intended to transact at and the price you actually paid. It focuses on major data releases, gaps opening, and thin-market conditions. Negative slippage tends to dominate over time for structural reasons related to the conditions in which it occurs. Managing it means understanding when it is most likely to occur, adjusting order timing and type accordingly, and selecting an execution environment that handles it consistently.

For a more detailed treatment of the mechanics, how stop-loss slippage affects risk management, and the asymmetry between positive and negative slippage across different broker models, Understanding Slippage in Fast Markets covers the full analysis.

Joshua Owen is CEO of Lunaro Financial Services. He has spent over a decade on trading desks at FCA-regulated firms, with a background in risk management, trading, and quantitative finance.

Disclaimer:

This material is a marketing communication and is provided for general information and educational purposes only. It does not take into account your personal circumstances, objectives or needs. Any opinions are those of the author at the time of writing and may change without notice. Nothing in this material constitutes (or should be construed as) financial, investment, legal, regulatory or tax advice, or a recommendation to engage in any investment activity. You should not rely on this material when making investment or trading decisions.