Slippage

Slippage refers to the difference between the expected price of a financial asset and the price at which the trade is actually executed. It typically occurs in situations of high volatility, low liquidity, or fast market movements.

Slippage represents the gap between the price level at which a trader intends to execute a trade and the price level at which the trade is actually filled. For example, if a trader wants to buy a stock at a price of $10, but the trade is executed at a price of $10.10, the trader has experienced a slippage of $0.10.

Slippage is often observed, particularly during fast market movements or events such as news releases. In such scenarios, market liquidity can decrease, and significant price discrepancies can occur between buyers and sellers. This makes it challenging for traders to execute trades at their expected price levels, resulting in slippage.

Slippage carries certain risks for traders. Executing trades at worse prices than expected can reduce profitability or increase losses. The risk of slippage is higher, especially in large-volume trades or in markets with low liquidity.

There are measures that can be taken to minimize or mitigate slippage. Conducting thorough market research, trading during high liquidity times, using stop-loss orders, or employing limit orders are some techniques that can help reduce the risk of slippage.

In conclusion, slippage refers to the difference between the expected price and the actual execution price of a trade. It occurs in situations of high volatility, low liquidity, or fast market movements. Slippage poses risks for traders as it can reduce profitability or increase losses. However, taking precautions such as conducting market research and using appropriate order types can help mitigate the risk of slippage.