Slippage: meaning, causes and how to reduce it

You click 'buy' expecting Rs 500, but the trade fills at Rs 501. That one rupee is the slip. This page explains what slippage means, why it happens, when it is worst and how traders can reduce it.

Quick answer

Slippage is the difference between the price you expect when you place an order and the price at which the order actually executes. It happens because prices move between the moment you decide and the moment the trade completes, or because there are not enough shares at your expected price. It can work against you or, less often, in your favour.

Key takeaways

• It is the gap between expected and actual fill price.
• Fast markets and low liquidity increase it.
• Market orders and stop loss market orders are most exposed.
• Limit orders can control it but may not fill.
• It adds to trading costs, especially for frequent traders.

What is slippage?

When you place an order, you usually have a price in mind based on what you see on screen. By the time your order reaches the exchange and matches, the price may have changed. The difference between what you expected and what you got is the slip.

It can be negative, when you pay more on a buy or get less on a sell, or positive, when the price moves in your favour. In fast markets, a negative slip is more common for urgent orders.

What causes slippage?

It is often highest at market open, around big news like RBI policy or company results, and in small company shares with thin trading. Options close to expiry can also show large slips because prices move quickly.

Slippage on stop loss orders

A stop loss market order becomes a market order once the trigger price is hit. In a sharp fall, the next available price may be well below your trigger, so you exit at a worse price than planned.

A stop loss limit order sets a worst acceptable price. This controls the slip, but if the price falls through your limit too quickly, the order may not fill at all, and you stay in the position.

How to reduce slippage

Use limit orders when the exact price matters more than speed. Trade liquid shares with narrow spreads and good depth. Avoid placing large market orders in the first few minutes of trading or right around major announcements.

For larger orders, split them into smaller parts. Always include an estimate of slippage when you judge a strategy, because it can turn a profitable-looking plan into a losing one, especially for frequent intraday trading.

The key point to remember

Slippage is a normal part of trading, not an error. You cannot remove it fully, but understanding when it is likely and choosing the right order type can keep it small.

Frequently Asked Questions