What is Slippage?
Slippage alludes to the distinction between the expected price of a certain trade and the price at which it is executed. Slippage is most likely to take place during times of high volatility and when a large order is executed with insufficient volume at the selected price to uphold the current bid/ask spread.
How does it work?
To start off, slippage is neither negative nor positive since any movement between the actual and intended execution prices can be dubbed slippage. At the point when a request is executed, the security is acquired or sold at the best price offered by an exchange or other market maker hence producing results that are:
- More favorable
- Equal, or
- Less favorable
Than the intended execution price. The final execution price can be described as positive, no, or negative slippage.
It is well-known that market prices are subject to abrupt changes, which in turn allows for slippage between an ordered trade and its completion. It is worth noting that slippage can occur in varying conditions for each venue.
- Slippage is the difference in trade execution price
- Slippage occurs between the time a market order is requested and the time a transaction or execution takes place.
- Slippage can affect all market venues such as bonds, currencies, futures and equities.