What slippage really means
Slippage is the difference between the price you expect when placing an order and the price at which the trade actually happens. Suppose sellers are quoting $50 per share and you submit a market order to buy 100 shares. If your average execution price is $50.20, you pay $5,020 instead of $5,000. That is $20 of negative slippage, before any trading fees. Your entry has become more expensive without you changing the size of your order. But slippage does not always work against you. If those 100 shares are bought at $49.90 instead, you spend $10 less than expected. That is positive slippage. The same thing can happen when you close a trade. Slippage is a difference in the trading price, not a separate fee added to your bill.
Why the displayed price may not be available
A market order tells your broker to buy or sell at the available market prices. It does not reserve the price you just saw. While your order is being processed, other traders can buy the shares that were available at that price. There may also be too few shares available to complete your whole order. For example, you might want 100 shares at $50, but only 40 are offered at that price. The remaining 60 may be bought at higher prices, increasing your average entry price. Slippage becomes more likely when prices move quickly, or there is little available to trade. Earnings reports and interest rate announcements can create these conditions. Also, a stock chart may show the price of the last completed trade, not the price currently available to buy.
How to control your price without assuming it is guaranteed
A limit order gives you more control over your entry. Set a buy limit at $50, and your order can execute only at $50 or lower. The disadvantage is that the trade may never happen. You control the maximum purchase price, but you cannot make sellers accept it. Your exit needs the same attention. A standard stop loss does not guarantee the price at which you will sell. Once triggered, it becomes a market order. Suppose you bought at $50 and placed a stop at $48. If the market falls sharply and your sale happens at $47, your loss is $3 per share instead of the planned $2, before fees. That is a 50% larger loss than expected. A stop loss helps manage risk, but it does not make your maximum loss certain.
Conclusion
Slippage can change your entry cost and your final result. The important distinction is that a market order prioritizes completing the trade, while a limit order controls the acceptable price but may remain unfilled. A standard stop loss also leaves the final execution price uncertain. The lesson is simple. Understand your order before submitting it, and leave room in your risk plan for a worse price. The number on your screen is not necessarily the number your account will record.
This marketing material is provided for informational purposes only and does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any financial instruments.
Trading in securities involves significant risk and may not be suitable for all investors. Prices of securities may fluctuate significantly and may result in a total loss of your investment. Investors should be aware that losses may exceed potential profits when buying and selling securities. In certain market conditions, you may sustain losses that exceed your initial investment. Securities and contracts for differences are complex financial instruments that require a high level of knowledge and understanding. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.
