Slippage in trading is the difference between the price at which you expect a trade to be executed and the price at which it is actually filled. So, what is slippage in trading exactly? It is the literal 'slip' in price that can occur during the fraction of a second it takes for an order to travel from your trading platform to the underlying market.
Many newer traders see slippage as an unexpected error or a hidden platform charge. In reality, it is a normal feature of live market execution. Slippage is a variable part of your cfd trading costs, alongside fixed spreads and commissions. When trading contracts for difference (CFDs) with high leverage, even small differences in execution price can have a significant effect on your account equity before the market has established a clear trend.
Quick Takeaways
- Slippage is the difference between your requested trade price and the actual execution price — in short, that is what slippage means in a live market context.
- It is caused by sudden market volatility or insufficient market depth at your chosen price level.
- Slippage can be negative, which increases your costs, or positive, which improves your fill price.
- Standard stop-loss orders do not protect against slippage because they become standard market orders once triggered.
How Price Slippage Works in Market Execution
Price slippage occurs because financial markets operate through fluid order books rather than fixed catalogues. The quote displayed on your trading platform is the latest available price, but the market continues to move. When you use a market order to buy or sell immediately, you instruct your broker to fill the position at the best available price in the order book, whatever that price may be.
At a mechanical level, slippage is mainly caused by two factors:
Market Speed and Volatility
During fast-moving market events, the price can move beyond your requested level in the milliseconds it takes for your order to be processed.
Gaps in Liquidity
When you place a large order, there may not be enough volume available at the current what is spread in trading headline quote to fill the entire position. The execution system must then move further into the order book and fill the remaining part of the trade at less favourable prices.
The True Cost of Trading: Positive vs Negative Slippage
Slippage is not always a disadvantage. Whether it works for or against you depends entirely on how the market moves at the exact moment your order is executed. Because prices can move in either direction, slippage can result in either a less favourable or a more favourable execution price.
Negative Slippage
Negative slippage occurs when your order is filled at a less favourable price than expected. For a buy order, this means the execution price is higher than requested. For a sell order, it means the execution price is lower. As a result, your trade starts with an additional cost that was not reflected in the quoted price.
Positive Slippage
Positive slippage occurs when the market moves in your favour while your order is being processed. A buy order is filled at a lower price, or a sell order is filled at a higher price, giving you an immediate improvement in execution.
The example below shows how slippage can affect the outcome of a standard CFD position. Imagine you place a market order to buy 100 open CFD contracts of an asset quoted at £150.00.
Execution Scenario | Filled Price | Immediate Structural Impact |
|---|---|---|
Perfect Execution | £150.00 | The trade opens exactly at the expected entry price. |
Negative Slippage | £150.05 | The position opens with an immediate £5.00 disadvantage beyond the quoted spread. |
Positive Slippage | £149.95 | The position opens with an immediate £5.00 price advantage. |
Under normal market conditions, orders are usually processed within a matter of milliseconds, so any price differences are typically small. During periods of extreme market volatility, however, execution times and price gaps can increase significantly.
Why Slippage Increases Risk for CFD Traders
For retail traders dealing in forex or index CFDs, understanding what is slippage in trading matters even more because of leverage. When you trade on margin, you only need to deposit a small percentage of the total position value. While this increases your market exposure, it also means that any adverse price movement, including an unfavourable execution price, has a proportionally greater effect on your account.
In practice, many traders find that slippage becomes much more noticeable during high-impact economic announcements.
For example, when a central bank unexpectedly changes interest rates, major liquidity providers may temporarily withdraw their quotes while they adjust to the new market conditions. If you place a market order during this brief period of reduced liquidity, your trade may be filled several pips (a pip being the smallest standard unit of price movement in forex trading) away from the quoted price because there are few or no matching orders available at the previous price level.
Standard Stop-Losses vs Slippage: The Volatility Trap
A common misconception among newer traders is that a standard stop-loss order guarantees an exit at the exact price they specify. In practice, this is not how a standard stop-loss works.
When you place a standard stop-loss, you are setting a trigger price. As soon as the market reaches that level, the stop-loss becomes a regular what is a market order. If the market gaps over a weekend or moves sharply during a period of high volatility, the next available price may be significantly different from your stop level. In this situation, your order will be executed at the next available market price, meaning any negative slippage becomes a realised trading loss.
To reduce this uncertainty, some brokers offer guaranteed stop-loss orders. These ensure your position is closed at the exact price you specify, regardless of market gaps or extreme volatility. However, this protection usually comes with an additional fee, creating a clear trade-off between guaranteed risk control and higher trading costs — a trade-off the FCA's guidance on CFD risk warnings highlights as a key consideration for retail traders.
Reducing Slippage: Order Types and Liquidity
Although you cannot prevent market prices from moving, you can take steps to reduce the likelihood of significant slippage.
One of the most effective approaches is to use limit orders instead of market orders. A limit order instructs the execution system to fill your trade only at your chosen price or at a better price. If the market moves beyond your limit or there is insufficient what is liquidity in trading to fill the order, it simply remains unfilled. This removes the risk of unexpected execution costs, although it also means you may miss a trading opportunity if the market never returns to your chosen price.
Many modern trading platforms also provide a slippage tolerance setting. This allows you to specify the maximum amount of price variation you are prepared to accept. If the platform cannot execute your order within that limit (for example, two pips), the order is cancelled automatically, helping to prevent your trade from opening at a significantly less favourable price.
Conclusion
Slippage is a normal part of trading in live financial markets. Understanding what is slippage in trading — and why it happens — helps you treat it as one of the variable costs of market execution rather than an unfair platform charge, and factor it into your overall risk management. By trading during periods of stronger liquidity and choosing the most appropriate order types, you can reduce the impact of slippage and help prevent unnecessary execution costs from affecting your trading performance.
FAQ
Is slippage good or bad in trading?
Slippage is structurally neutral and can be both positive or negative. Negative slippage increases your transaction costs by filling a buy order higher or a sell order lower than expected. Positive slippage moves in your favour, providing price improvement by filling your order at a more advantageous price tier.
How do you avoid slippage entirely?
You can avoid slippage completely by switching from market orders to limit orders. A limit order guarantees that your trade will only execute at your specified target price or a better one. However, if market liquidity is thin, the trade may not be filled at all.
Why does forex slippage happen during news events?
High-impact economic news causes sharp liquidity drops as institutional providers temporarily remove their quotes from the order book. Sending market orders into this environment triggers heavy forex slippage, as your trade is forced to fill at much deeper, less advantageous price levels.
Why did my stop-loss suffer from price slippage?
Standard stop-loss orders do not guarantee a fixed execution price because they instantly convert into market orders once triggered. If the market gaps over a weekend or drops rapidly during a volatile session, your order is filled at the next available price, capturing the price slippage.
What is a slippage tolerance setting?
Slippage tolerance is a platform feature that lets you set a cap on the maximum execution variance you will accept. If the engine cannot find a fill within your chosen threshold (e.g., 2 pips), the transaction is aborted automatically to protect your entry cost.