What is slippage in trading?

Risk warning: Contracts for difference (CFDs) are complex instruments and come with a high risk of losing money rapidly due to leverage. Approximately 80% of retail investor accounts lose money when trading CFDs, according to Financial Conduct Authority data. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Slippage is one of several factors that can affect your trading outcomes, but far from the only risk involved.

Slippage defined: The basics

Slippage refers to the difference between the price you expect when placing a trade and the price at which that trade actually executes. If you click to buy a share at £1.50 and your order fills at £1.51, that £0.01 gap is slippage.

The concept applies whether you are buying or selling. What is price slippage in practical terms? It is the market moving between the moment you submit your order and the moment the exchange or broker matches it with a counterparty.

Slippage is not a fee, charge or intentional cost. It is a natural consequence of how markets work. Prices shift constantly as buyers and sellers interact. Your order joins a queue, and by the time it reaches the front, conditions may have changed.

Why does slippage happen?

Three primary factors drive slippage. Understanding each helps set realistic expectations.

Market volatility

When prices move rapidly, the gap between your intended price and actual execution widens. Economic data releases, earnings announcements, geopolitical events and central bank decisions can all trigger sharp moves. During these moments, prices may jump several points within seconds.

Think of it like trying to step onto a moving escalator. The faster it moves, the harder it is to land exactly where you aimed.

Low liquidity

Liquidity describes how easily you can buy or sell an asset without significantly affecting its price. Highly liquid markets, such as major currency pairs during peak trading hours, typically show tighter bid-ask spreads and less slippage. Illiquid markets, including smaller company shares or exotic currency pairs, often exhibit wider spreads and more pronounced slippage.

When fewer buyers and sellers are present, your order may need to fill across multiple price levels, resulting in a worse average execution price than anticipated.

Order size and timing

Larger orders are more susceptible to slippage. If you want to buy 100,000 shares but only 20,000 are available at your target price, the remaining 80,000 must fill at progressively less favourable prices.

Timing matters too. Trading during market opens, closes or overnight sessions often means reduced liquidity and wider spreads. Orders placed during these periods face higher slippage risk.

Positive vs negative slippage

Slippage is not inherently bad. It works both ways.

Negative slippage occurs when you receive a worse price than expected. You aimed to buy at £1.00 but paid £1.01, or sold at £1.00 but received £0.99.

Positive slippage occurs when you receive a better price than expected. You aimed to buy at £1.00 but paid £0.99, or sold at £1.00 but received £1.01.

Markets move in both directions. While negative slippage often receives more attention, positive slippage can and does occur. Neither outcome is guaranteed for any particular trade. Over many trades, slippage may average out to some degree, though this is not assured.

The key point is balance. Slippage is an inherent market characteristic, not a directional bias against you.

Slippage in different markets

Slippage exists across virtually all tradeable markets, though its frequency and magnitude vary.

Forex and CFDs

The foreign exchange market is the most liquid financial market globally, with major pairs like EUR/USD typically showing minimal slippage during normal conditions. However, slippage increases notably during high-impact news events, weekend gaps or when trading less common currency pairs.

CFDs, which allow speculation on price movements without owning the underlying asset, can experience slippage just like their underlying markets. Because CFDs often involve leverage, even small amounts of slippage may have magnified effects on your position relative to your margin. This amplification is one reason why understanding slippage matters particularly for leveraged traders.

Cryptocurrency

What is slippage in crypto markets? The same principle applies, but with typically greater frequency and magnitude. Cryptocurrency markets trade around the clock with varying liquidity across different exchanges and tokens.

Smaller altcoins may have particularly wide spreads and thin order books. A market order for a low-liquidity token might execute across dozens of price levels, resulting in substantial slippage. This is one reason why crypto traders often pay close attention to order book depth before executing larger trades.

How slippage may affect your trades

Slippage affects your actual entry and exit prices, which in turn affects your realised profit or loss. Consider a straightforward example.

You plan to buy 1,000 shares at £2.00 each, risking a stop loss at £1.90 for a potential £0.10 loss per share. If slippage causes your entry at £2.02 instead, your effective risk increases to £0.12 per share, a 20% increase in potential loss from that single trade.

For frequent traders, small amounts of slippage compound across many transactions. A consistent £0.01 of negative slippage across hundreds of trades adds up.

However, slippage should be viewed as one component of overall trading costs, alongside spreads, commissions and financing charges. Focusing excessively on slippage while ignoring other costs provides an incomplete picture.

Practical considerations for managing slippage

Slippage cannot be eliminated. It is part of how markets function. However, you can make informed choices that may reduce its impact.

Limit orders specify the maximum price you will pay (when buying) or minimum price you will accept (when selling). Unlike market orders, which fill at whatever price is available, limit orders give you price control. The trade-off is that your order may not fill at all if the market moves away from your limit.

Consider timing. Trading during periods of higher liquidity, typically when major markets overlap, often means tighter spreads and reduced slippage. Avoiding trades immediately around major news releases may also help, though this means potentially missing certain opportunities.

Be realistic about order size. If you trade larger positions, consider whether breaking them into smaller portions might result in better average execution. This approach has its own trade-offs, including potentially missing price movements between orders.

Some brokers offer tools like slippage tolerance settings, which allow you to specify the maximum deviation from your requested price that you will accept. These can provide some control, though they do not guarantee fills.

Key takeaways

• Slippage is the difference between your expected trade price and your actual executed price. It is a normal part of trading, not a fee or penalty.

• Three main factors cause slippage: volatility, low liquidity, and the size and timing of your order. All three interact, and conditions vary across markets and time periods.

• Slippage can be positive or negative. While traders naturally notice unfavourable outcomes more readily, prices can move in your favour between order submission and execution.

• Different markets experience different slippage patterns. Forex majors during peak hours typically show less slippage than small altcoins or illiquid shares.

• Practical steps such as using limit orders, timing trades thoughtfully and sizing positions appropriately may help manage slippage, but none eliminates it entirely. Treat slippage as an inherent market characteristic and factor it into your overall trading approach.

• For leveraged products like CFDs and forex, slippage effects can be amplified relative to your margin. Understanding this relationship is part of managing the broader risks these instruments carry.