Slippage
The difference between the price you expected when placing an order and the average price you actually got.
Slippage happens when an order moves through several price levels in the order book, or when prices change between the moment you decide and the moment your order arrives. It is usually larger in illiquid shares, for large orders and during fast markets.
Limit orders cap slippage; market orders do not.
Example
You expect to buy at ₹100 but your market order fills at an average of ₹100.80. The slippage is 80 paise per share, or 0.8%.
Learn more in these lessons
- Market orders and limit ordersWhat is the difference between a market order and a limit order?
- BacktestingHow do you test a trading idea on past data properly?
- Survivorship, look-ahead and other backtesting biasesWhy do backtests built on real data still give unrealistic results?
- Liquidity and slippage in derivativesWhy can't you always exit an options position at the last traded price?
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