Slippage

Slippage is a term used in the financial markets to describe the difference between the expected price of a trade and the price at which the trade is actually executed. It is a common occurrence in the stock, futures, and forex markets, and can have a significant impact on the profitability of a trade.

Slippage occurs when the market moves quickly and the order is not filled at the expected price. This can happen when the market is volatile, or when there is a lack of liquidity in the market. In these cases, the order may be filled at a different price than the one expected by the trader.

Slippage can be either positive or negative. Positive slippage occurs when the order is filled at a better price than expected, resulting in a profit for the trader. Negative slippage occurs when the order is filled at a worse price than expected, resulting in a loss for the trader.

Slippage can be minimized by using limit orders instead of market orders. Limit orders allow the trader to specify the maximum price they are willing to pay for a security, and the order will only be filled if the price is at or below the specified limit. This helps to ensure that the order is filled at the expected price, or at least close to it.

Slippage can also be minimized by using stop-loss orders. These orders are designed to limit losses by automatically closing a position if the price moves beyond a certain point. This helps to ensure that the trader does not suffer large losses due to slippage.

In conclusion, slippage is a common occurrence in the financial markets and can have a significant impact on the profitability of a trade. It can be minimized by using limit orders and stop-loss orders, which help to ensure that the order is filled at the expected price.