Slippage
Slippage is the gap between the price you expected to trade at and the price you actually got. It is the silent tax of fast markets — and a major reason why backtested strategies look better on paper than in real life. Every active trader needs to understand slippage to size positions correctly and pick the right order types.
Key takeaways:
- Slippage is the difference between expected and executed price, in either direction.
- It is highest in volatile markets, illiquid stocks, and during news-driven minutes.
- Market orders cause more slippage than limit orders, but limit orders may not fill.
- Auto square-off orders, large block trades, and stop-loss triggers are common slippage culprits.
- You can reduce slippage with limit orders, iceberg orders, and trading during high-liquidity windows.
A practical example of slippage
Suppose Nifty is trading at 22,100 and you want to buy 10 lots of Nifty futures with a market order. The best ask shows 22,100.15 but only for 5 lots; the next 5 lots get filled at 22,100.45. Your average price is 22,100.30 — that 0.15-point gap from your expected 22,100.15 is slippage. Multiply by 25 (lot size) and 10 lots and that is ₹375 of cost you did not anticipate.
What causes slippage
- Low liquidity: Stocks with thin order books cannot absorb large orders without moving the price.
- Volatility spikes: News, results, or macro data can shift quotes faster than your order reaches the exchange.
- Large order size: When you eat through multiple price levels of the order book.
- Market open and close: Pre-open auctions and the closing call create temporary imbalances.
Why slippage hurts strategies
Backtests usually assume execution at a single reference price — the close, the high, or a chosen quote. Real markets do not work that way. A scalping system showing ₹2 average profit per trade will quickly become unprofitable if slippage on entry and exit is ₹1.50 per trade.
How to reduce slippage
- Use limit orders in volatile or illiquid markets. You may miss some trades, but you control the worst price.
- Avoid the first and last five minutes of a session unless you specifically need to trade those windows.
- Split large orders with an iceberg or manual ladder of smaller orders.
- Check depth in the order book before market orders — do not blindly press buy.
- Use stop limit instead of stop market where possible to cap downside from slippage.
Positive vs negative slippage
Slippage is not always bad. If you place a market buy and the price drops microseconds later, you may get filled below your expected price — positive slippage. In aggregate, however, traders experience more negative than positive slippage because aggressive orders consume liquidity at progressively worse prices.
Slippage in different segments
| Segment | Typical slippage |
|---|---|
| Liquid Nifty/Bank Nifty futures | 0.05–0.10 points |
| Mid-cap cash equity | 0.10–0.50% in normal markets |
| Far OTM options (illiquid) | 5–15% of premium |
| News-driven small-caps | 1% or more per trade |
Frequently asked questions
Is slippage the same as brokerage?
No. Brokerage is a direct fee charged by your broker. Slippage is an implicit cost arising from market dynamics — you do not see it on the contract note but it eats into your P&L.
Can stop-loss orders suffer slippage?
Yes. A stop-loss market order will fire after the trigger and may execute several ticks below the trigger price in fast markets.
Does slippage exist in mutual funds?
Mutual funds settle at end-of-day NAV, so individual trade slippage is invisible to investors, but it shows up indirectly in fund performance.
How is slippage measured?
Compare the mid-price (or last traded price) at order placement with the actual average execution price. The difference, in points or basis points, is the slippage.
