The difference between the expected price of a trade and the actual price at which it executes. Slippage occurs when market orders are filled at a slightly different price than displayed, usually during fast-moving markets or periods of low liquidity.
Why It Matters
Slippage is an invisible cost that can significantly impact scalpers and high-frequency traders. In futures markets, slippage of even 1 tick per trade on ES futures costs $12.50 per contract per side. On 20 round-trip trades with 3 contracts, that's $1,500 in daily slippage costs. Many prop firm simulated accounts replicate market conditions closely, but some may show less slippage than a live exchange which can slightly overstate a strategy's performance. This is most noticeable for scalping strategies that rely on precise entry prices. When transitioning from evaluation to funded trading, slippage differences can turn a profitable strategy into a losing one.
Example
You place a market order to buy 5 ES contracts when the ask shows 4,500.00. Due to fast market conditions, your fill prices are: 2 contracts at 4,500.00, 2 at 4,500.25, and 1 at 4,500.50. Your average fill is 4,500.15, resulting in $37.50 in slippage (0.15 points x $50 x 5 contracts). This slippage reduces your profit if you were targeting a specific entry price.
Common Mistakes
- ✖Not accounting for slippage when backtesting strategies or calculating expected performance
- ✖Using market orders during high-volatility events where slippage is worst
- ✖Assuming slippage on a simulated account matches what you'd experience on live markets