Slippage is the difference between the price you meant to trade at and the price you actually filled at. You aim to buy at 100, the order fills at 100.3, and that 0.3 comes straight out of your edge. It shows up worst in fast markets, thin liquidity, and around news, exactly when you needed your fills to be clean.
Why does slippage happen?
Between clicking and filling, the price moves and the order book changes. Market orders take whatever price is available, so in a thin or fast market you get filled worse than you saw. Big size eats through several levels of the book, each one worse than the last. The quieter and deeper the market, the smaller your slippage.
How much does it cost you?
Actual broker fills can materially change live results, especially for a strategy with small average wins or frequent trades. Do not guess this component from incomplete data. Without broker-reported values or complete authoritative historical evidence, it remains unmodeled.
Can you cut it down?
Some of it, yes. Use limit orders where you can, trade liquid instruments and avoid the first seconds after news. Preserve broker-delivered fills and compare them only when the intended or reference price is authoritative. Do not invent a number for a backtest; leave it unavailable when the evidence is incomplete.
Frequently asked questions
Related terms
- R Multiple — Every trade measured against what you risked, where a full stop is always minus 1R.
- Trading Costs — Broker-reported commissions and fees, plus components computed from an exact verified schedule.
- Live vs Backtest — The gap between how a strategy looked in testing and how it performs with real money.
- Forward Testing — Running a strategy on new market data in real time, before you risk real money on it.