Price slippage in trading happens when the price at which your trade is executed differs from the expected price.
It can occur in any market, whether you’re trading forex, stocks, or cryptocurrency.
It’s especially common during periods of high volatility or low liquidity.
Understanding price slippage is crucial for all traders, as it can affect both your profits and losses.
In this article we take a close look at what is slippage in trading, and explain what you can do to avoid it.
Slippage definition
Slippage refers to the difference between the price you expect when placing a trade, and the actual price the trade gets executed at.
This can happen when you place a market order or a stop order, and the final price is higher or lower than you anticipated.
It’s important to remember that price slippage isn’t always negative.
While most people associate slippage with a loss, it can also work in your favour if the price moves in a direction that benefits you.
Slippage can be either positive or negative
Slippage can be both positive and negative, meaning the price you actually achieve can be higher or lower than your expected price.
- Positive slippage occurs when the price moves in your favour between the time you place your order, and the time it’s executed. The result is a better price than anticipated.
- Negative slippage occurs when the price moves against you, leading to a less favourable price than expected.
Forex slippage example:
Here’s a forex example of positive and negative slippage:
Positive forex slippage
Imagine you want to sell EUR/USD at 1.0800. However, before your order is executed, the price rises to 1.0851. In this case, you’ve experienced positive slippage as you were able to sell at a higher price than your original target.
Negative forex slippage
Let’s say you want to buy GBP/USD at 1.3000. However, before your order is executed, the price rises to 1.3002. In this scenario, you’ve experienced negative slippage as you bought at a higher price than your original target.
Crypto example of positive and negative slippage:
Positive crypto slippage
Let’s say you want to buy Bitcoin (BTC) at $68,000. However, before your order is executed, the price drops to $67,998. In this case, you’ve experienced positive slippage as you were able to buy at a lower price than your original target.
Negative crypto slippage
Imagine you want to sell Ethereum (ETH) at $2,000. However, before your order is executed, the price drops to $1,999.50. In this scenario, you’ve experienced negative slippage as you sold at a lower price than your original target.
What are the main causes of price slippage in trading?
The main causes of slippage include:
- Market volatility: Slippage often occurs during periods of high volatility when prices change rapidly between the time you place a trade and when it’s executed.
- Low liquidity: When liquidity is low, it can be difficult to find a buyer or seller at your desired price. This can result in your trade being executed at a different price.
- Order type: Using market orders increases the likelihood of slippage because these orders execute at the best available price. In contrast, limit orders prevent slippage by only executing at the price you specify. However, it pays to know the exact terms of your broker’s limit orders. This is because some limit orders are ‘market if touched’ orders. A ‘market if touched’ order means if the market price reaches your exact specified price, an instant market order will be executed.
- Current trading volume: High trading volume can lead to a deeper order book, and therefore lower price slippage.
- Large order size: Placing large orders can also contribute to slippage, as it may be difficult to find enough buyers or sellers to fill your order at the desired price.
What is slippage in forex trading?
In forex trading, slippage is common during volatile periods, such as when major economic data is released or during major geopolitical events.
If you’re trading a pair including the USD, major economic data events include:
- Employment Reports: Released on the first Friday of each month, the Non-Farm Payroll report provides insights into the health of the US labour market.
- Federal Reserve Interest Rate Decisions: The Federal Open Market Committee (FOMC) announces its interest rate decisions usually every six weeks. These decisions can significantly affect the value of the US dollar and financial markets.
- Gross Domestic Product (GDP): Released quarterly, GDP measures the total value of goods and services produced within the US economy.
- Inflation Indicators: The Consumer Price Index (CPI) and Producer Price Index (PPI) are key indicators of inflation in the US economy.
Because the forex market operates 24-hours a day, five days a week, price swings due to economic events can catch you off guard.
Price slippage often occurs when you use a market order in fast-moving markets.
However, it can also happen in quieter times when liquidity is low, and there are fewer buyers or sellers for a particular currency pair.
Which forex pairs are most likely to experience slippage?
Slippage in forex trading typically occurs during periods of high volatility or when there is low liquidity in the market.
Forex pairs with low liquidity or high volatility are more likely to experience slippage.
Certain forex pairs are more prone to slippage due to these factors.
Below are specific examples of forex pairs that are more likely to experience slippage.
Exotic pairs:
These pairs involve currencies from emerging markets or less-traded economies, such as the South African Rand (ZAR) or the Thai Baht (THB).
Due to their lower liquidity, exotic pairs can have wider bid-ask spreads and more significant slippage.
Examples include:
- USD/TRY (US Dollar/Turkish Lira)
- USD/ZAR (US Dollar/South African Rand)
- EUR/TRY (Euro/Turkish Lira)
Minor pairs:
These pairs involve two currencies that are not among the major currencies (USD, EUR, GBP, JPY, CHF, CAD).
Minor pairs often have lower trading volume and can be more susceptible to slippage.
Examples include:
- EUR/GBP (Euro/British Pound)
- AUD/JPY (Australian Dollar/Japanese Yen)
- NZD/CHF (New Zealand Dollar/Swiss Franc)
These pairs typically have lower trading volumes compared to major pairs, increasing the likelihood of slippage.
Cross pairs:
These pairs do not involve the US dollar.
Cross pairs can have higher volatility and wider spreads, especially during periods of market turbulence.
This increased volatility often leads to a greater likelihood of slippage. Below are examples of cross pairs known for their higher volatility.
- GBP/JPY (British Pound/Japanese Yen)
- EUR/JPY (Euro/Japanese Yen)
- AUD/JPY (Australian Dollar/Japanese Yen)
- GBP/AUD (British Pound/Australian Dollar)
- NZD/JPY (New Zealand Dollar/Japanese Yen)
- EUR/GBP (Euro/British Pound)
What is slippage in crypto trading?
In cryptocurrency markets, slippage is a frequent occurrence due to the market’s inherent volatility.
Cryptos can experience sudden price swings triggered by news events, market sentiment, or regulatory changes.
Additionally, many cryptocurrency exchanges lack liquidity for certain digital assets, contributing to slippage.
When trading crypto, you’re likely to experience slippage more often compared to more traditional markets like forex or stocks.
How to calculate crypto slippage
Here’s a simplified formula to calculate slippage:
Slippage Percentage = ((Expected Price – Executed Price) / Expected Price) * 100
For example:
You want to buy Bitcoin at $68,000. However, due to market volatility, the price rises to $68,002 by the time your order is executed.
Calculating Slippage:
- Slippage Percentage = ((68,000 – 68,002) / 68,000) * 100 = -0.03%
In this case, you experienced a slippage of 0.03%, which means you bought Bitcoin at a price slightly higher than your intended price of $68,000.
Difference in slippage across different blockchain networks and platforms
The extent of slippage can vary dramatically across different blockchain networks and platforms.
Several key factors influence this variation:
- Liquidity:
The availability of buyers and sellers in the market directly affects slippage.
Cryptocurrencies with high liquidity, such as Bitcoin and Ethereum, tend to have lower slippage due to a more robust order book.
Conversely, smaller altcoins with lower liquidity may experience more significant slippage, as there might not be enough buyers or sellers to execute your order at the desired price.
- Volatility:
Price fluctuations can also contribute to slippage.
Cryptocurrencies known for their high volatility, like Dogecoin or Shiba Inu, are more susceptible to price swings during the execution of an order, potentially leading to slippage.
- Platform type:
The type of platform you’re using – either a centralised or decentralised exchange – can also influence slippage.
However, if you are trading a cryptocurrency using CFDs through MarketMates, this is not a consideration you need to worry about.
Traditionally, centralised exchanges like Binance or Coinbase, often have deeper order books and more trading activity, which can help mitigate slippage. However, they may also have higher fees.
Decentralised exchanges, such as Uniswap or PancakeSwap, rely on liquidity pools and can be more prone to slippage, especially for less popular tokens.
- Order type:
The type of order you place can impact slippage.
Market orders, which are executed immediately at the best available price, are more likely to experience slippage, especially during periods of high volatility.
Limit orders, on the other hand, allow you to specify a maximum price you’re willing to pay or a minimum price you’re willing to sell for, potentially reducing slippage but increasing the risk of your order not being filled.
- Trading Volume:
The overall trading volume on a platform can also influence slippage. Higher trading volume generally leads to a deeper order book and lower slippage.
Understanding these factors can help you make informed decisions when trading cryptocurrencies and minimise the impact of slippage on your profits.
What is slippage in stock trading?
Slippage in stock trading also occurs when the market price of a stock changes between the time you place your trade, and when it is executed.
You’ll most often see slippage during fast-moving periods, such as earnings reports, stock market open or close times, or if you are trading smaller stocks with low volume.
Even highly liquid stocks can experience slippage if the market is volatile.
Slippage and lower-volume stocks
Stocks with a lower number of shares on offer are generally less liquid, meaning there are fewer buyers and sellers in the market.
This can increase the likelihood of slippage for several reasons:
- Wider bid-ask spread: When there are fewer shares available, the difference between the highest price a buyer is willing to pay (the bid price) and the lowest price a seller is willing to accept (the ask price) can be wider.
This means you may have to buy at a higher price or sell at a lower price than you intended.
- Difficulty in executing large orders: If you’re trying to buy or sell a large quantity of a low-volume stock, it may be difficult to find enough shares to fill your order at your desired price.
This can lead to slippage as you may have to execute your trade at a less favourable price.
Examples of high-volume stocks
High-volume stocks reduce the likelihood of you having difficulty executing a large order.
Difficulty with executing a large order is very unlikely to happen if you trade stock CFDs with MarketMates, as we only offer stocks with high liquidity.
These are examples of stocks with a large number of shares outstanding which are heavily traded world-wide:
- Apple (AAPL)
- Microsoft (MSFT)
- Amazon (AMZN)
- Tesla (TSLA)
- Facebook (META)
- Netflix (NFLX)
- Google (GOOG)
How to avoid slippage in trading
While you can’t eliminate slippage entirely, there are strategies you can use to reduce it:
Choose liquid assets
Examples include:
- Forex pairs: Major currency pairs like EUR/USD, GBP/USD, and USD/JPY typically have more liquidity.
- High-volume stocks: Opt for stocks with a large number of shares outstanding, and active trading.
- Major cryptocurrencies: Bitcoin, Ethereum, and other major cryptocurrencies generally have higher liquidity.
Use limit orders
Limit orders allow you to set a specific price for your trades, ensuring your order is only executed at that price or better. This can help you avoid slippage.
Trade during periods of high liquidity
By trading when markets are most liquid—such as during the overlap of major forex sessions, or during regular stock market hours—you can minimise slippage.
See here for the best times to trade forex, when there is overlap between two session times:
Time your trading carefully
Avoid trading during major news events.
Volatility spikes during high-impact news events can lead to significant slippage, so it’s best to avoid trading during these times.
Trade through a broker who is on YOUR side:
At MarketMates, getting you the best price at the fastest possible speed helps us to minimise slippage.
This is done automatically by our execution engine, which selects the best price available from our pool of liquidity providers.
Our trading technology provider won the ‘Best Connectivity Provider’ award at the Global Forex Awards in 2024.
Although we can never guarantee that slippage won’t occur, we can guarantee that we will always act in the best interests of you, the trader.
You can read more about this subject here in our best execution policy.
Final thoughts about slippage in trading
Slippage is an unavoidable part of trading, particularly in fast-moving or low-liquidity markets.
While it can sometimes work to your advantage, slippage more often has a negative impact on your trading results.
By understanding the causes of slippage, and implementing reduction strategies like using limit orders, and trading during high liquidity periods, you can reduce its effects.
Factoring slippage into your trading plan is essential to protect your trading capital.
Till next time, I hope you trade safely.
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Sources
Marketmates uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial guidelines to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
- Corporate Finance Institute – Slippage https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/slippage/
- Investopedia – Slippage: What it means in finance https://www.investopedia.com/terms/s/slippage.asp
- Your Bourse – MarketMates’ technology provider https://www.yourbourse.com/
