Slippage is the difference between the expected price of a trade and the actual price at which it is executed. It occurs naturally in fast-moving, volatile, or low-liquidity markets when prices shift between the time an order is placed and the time it is processed by a broker or exchange.
Slippage can be positive or negative. Positive slippage occurs when you receive a better price than expected. Negative slippage occurs when you receive a worse price.
However, when traders talk about slippage, they usually refer to negative slippage, as it increases trading costs and can affect profitability.
Why Does Slippage Happen?
Slippage occurs when markets move faster than the liquidity available. In simple terms, the price you see on your screen may no longer be available by the time your order reaches the market.
Several factors contribute to slippage, including high volatility, major economic news releases, periods of low liquidity, and slow execution speeds.
The faster the market moves, the more likely slippage becomes. This is why slippage often appears during events such as central bank announcements, inflation reports, employment data releases, and major geopolitical developments.
Can Slippage Be Completely Avoided?
No, you can’t completely avoid slippage, but you can minimize it. Remember, slippage is a natural part of financial markets. Even institutional traders experience slippage from time to time.
Therefore, the goal is not to eliminate slippage entirely, but to reduce its frequency and minimize its impact on your trading performance.
Fortunately, there are several practical ways to do exactly that.
9 Practical Ways of Minimizing Slippage
Here are 9 practical ways of minimizing the impact of slippage on your trades:
Trade During High-Liquidity Market Hours
One of the simplest ways to reduce slippage is to trade when markets are most active.
Higher liquidity generally means more buyers and sellers are available in the market. This creates tighter spreads and improves the likelihood that orders will be filled near the desired price.
For forex traders, the London and New York sessions often offer the highest liquidity. When these sessions overlap, trading volume typically increases even further.
By contrast, trading during quiet market periods may expose traders to wider spreads and greater slippage.
Avoid Trading During Major News Releases
Economic news can create enormous volatility within seconds. When important data is released, prices can move so quickly that available liquidity disappears almost instantly.
This often causes significant slippage. Examples include:
Interest rate decisions
Non-Farm Payrolls (NFP)
Inflation reports
GDP announcements
Central bank speeches
Unless news trading is part of your strategy, waiting for market conditions to stabilize can help reduce unnecessary execution risks.
Sometimes the best trade is the one you don't rush into.
Use Limit Orders Instead of Market Orders
A market order instructs your broker to fill your trade at the best available price. This prioritizes execution speed but leaves the final execution price open to market conditions.
A limit order, on the other hand, works differently. It specifies the exact price at which you are willing to enter or exit a trade. If that price is not available, the order simply remains unfilled.
While limit orders may occasionally result in missed opportunities, they can help traders maintain greater control over execution prices.
For traders concerned about slippage, limit orders are often worth considering.
Trade Highly Liquid Instruments
Not all markets are equally liquid. Major currency pairs such as EUR/USD, GBP/USD, and USD/JPY typically have deep liquidity and significant trading volume.
Similarly, major stock indices and widely traded commodities often exhibit lower slippage than thinly traded assets.
Markets with low trading activity may experience larger price gaps between available orders, increasing the likelihood of slippage. Choosing liquid instruments can help improve execution consistency.
Avoid Oversized Positions
Large position sizes can sometimes be more difficult to execute efficiently. When an order exceeds the available liquidity at a given price level, parts of it may be filled at different prices.
This can increase overall slippage.
Professional traders often consider market liquidity when determining position size rather than focusing solely on account balance.
The larger the trade relative to available market volume, the greater the potential execution challenge.
Use Realistic Stop Losses
Many traders place stop losses extremely close to current market prices.
While this may appear to reduce risk, it can also increase the likelihood of getting stopped out during normal market fluctuations. In fast-moving conditions, stop-loss orders may experience slippage as the market moves through the stop level.
Placing stop losses based on market structure rather than arbitrary distances can often improve execution outcomes and reduce unnecessary exits.
Choose a Broker With Fast Execution
Execution speed plays a critical role in reducing slippage. The faster an order reaches the market, the greater the likelihood that it will be filled near the intended price.
This is why experienced traders pay close attention to execution quality when selecting a broker.
A broker's infrastructure, technology, liquidity providers, and order-routing systems all influence execution performance.
For example, Tradin has invested heavily in advanced infrastructure designed to deliver lightning-fast execution with minimal slippage. The platform's technology helps ensure orders are processed efficiently, allowing traders to focus on their strategies rather than worrying about execution delays.
Monitor Market Conditions Before Entering Trades
Many traders focus exclusively on chart patterns and technical analysis while ignoring broader market conditions.
Yet market conditions often determine execution quality. Before entering a trade, consider questions such as:
Is a major news release approaching?
Is market liquidity currently strong?
Are spreads widening?
Is volatility unusually high?
A few moments of preparation can often help traders avoid unnecessary slippage and improve overall execution quality.
Final Thoughts
Slippage is a reality of trading, but it does not have to become a major obstacle.
By trading during liquid market hours, avoiding unnecessary exposure during major news events, using appropriate order types, choosing liquid markets, managing position sizes responsibly, and working with a broker that prioritizes execution quality, traders can significantly reduce their impact.
Most importantly, remember that slippage is not always a reflection of poor strategy. Sometimes it is simply a reflection of market conditions.
The goal is not perfection, but consistency. Minimizing slippage is one of many small advantages that can improve long-term trading performance.
Frequently Asked Questions
What is slippage in trading?
Slippage occurs when a trade is executed at a price different from the one the trader requested.
Can slippage be avoided completely?
No. Slippage is a natural part of financial markets, although traders can take steps to reduce its frequency and impact.
Is slippage always negative?
No. Slippage can be positive or negative. Positive slippage occurs when a trader receives a better price than expected.
Why is slippage common during news events?
News releases often create rapid price movements and temporary liquidity shortages, making it harder to execute orders at the desired price.
Do market orders cause more slippage than limit orders?
Generally, yes. Market orders prioritize execution speed, while limit orders prioritize execution price.
Does broker execution speed affect slippage?
Yes. Faster execution can help reduce the likelihood of negative slippage, particularly during volatile market conditions.
Which markets experience the least slippage?
Highly liquid markets, such as major forex pairs and major stock indices, typically experience less slippage than thinly traded markets.
Why does slippage matter?
Slippage affects trade entries, exits, risk management, and overall profitability. Over time, repeated slippage can significantly impact trading results.