SLIPPAGE
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The difference between expected transaction price and the executed price due to market movement or liquidity.
Summary
Slippage is the unwanted difference between what you expect to pay/receive for a trade and what actually happens when your order is executed. Think of it like ordering something online for $100, but by the time your payment processes, the price has changed to $102 - that $2 difference is slippage. It occurs because markets are constantly moving, and there may not be enough buyers or sellers at your desired price when your trade goes through.
Usage Context
Understanding slippage is crucial when learning about trade execution, risk management, order types, market microstructure, and developing trading strategies. It's particularly important when analyzing transaction costs and portfolio performance.
Common Confusions
- Thinking slippage only occurs in volatile markets (it can happen anytime)
- Confusing slippage with trading fees or commissions
- Believing limit orders completely eliminate slippage risk
- Not understanding that slippage can be positive (getting a better price than expected)
