slippage meaning in trading

Slippage is the difference between the price you expected to trade at and the price you actually got. It comes from three stacked sources — the bid-ask spread you cross going in and coming out, the impact of your own order eating through successive levels of the order book, and the price moving between your decision and your execution. None of it appears on the chart, which is why backtests run on closing prices systematically overstate what a strategy earns.

the gap between the best bid and the best ask on the order book is called

The bid-ask spread. It is the smallest cost you pay on every trade in both directions, it widens as a stock gets thinner, and it is widest in the first and last few minutes of the session. Depth is a separate question: the spread tells you the price of the first share, while market depth tells you how many shares exist at that price before your order has to reach up to worse ones.

why is my fill price worse than the price i saw on the chart

Because the chart shows a price at which somebody traded, not a price available to you in your size. The last traded price sits at the top of an order book holding a finite number of shares at each level, so a large order consumes the best level and then the next, and your fill is the average of everything you had to take. In a liquid largecap that gap is small; in a thin midcap a modest order can move the price several percent.

does a strategy that makes 0.6% per trade still work after costs

Not with any confidence if realistic round-trip costs are around 0.5%. That leaves a 0.1% net edge, which sits well inside the error of any cost estimate — and slippage worsens in exactly the fast, gapping conditions short-horizon strategies trade in. Costs here mean the spread both ways, impact cost, brokerage, STT, stamp duty and GST added together, and this is the single most common way a backtest looks profitable and loses money live.

market order or limit order in an illiquid stock

Limit orders are the usual answer in anything but the most liquid names, because a market order guarantees execution but not price — in a thin book it can walk several levels up before it fills. The trade-off is that a limit order at or near the touch will occasionally miss the fill entirely. Breaking a large order into smaller pieces over a period also consumes the book less aggressively than one big order does.

Why your fill is worse than the chart

Backtests are run on closing prices. Real trades happen against an order book with a finite number of shares at each level. The difference between the two — slippage — is a cost that never appears on the chart and quietly decides whether a strategy is viable.

Think of it like this

Platform pe ek hi seat

The board shows a ₹500 ticket. You reach the counter and only two seats remain at ₹500; the rest are ₹560. If you need six seats, your average cost is nothing like ₹500 — and the board was never lying.

In the market

That is market depth. The screen shows the last traded price; the order book shows how many shares actually exist at it. Your fill is the average of everything you had to consume.

The three costs, stacked

Cost	What it is	When it bites
Spread	The gap between best bid and best ask	Every single trade, both ways
Impact	Your own order pushing the price	Large orders in thin stocks
Timing	Price moving between decision and execution	Fast markets, gaps, news

Loading interactive demo…

Increase the order size and watch it eat through successive levels. The average fill drifts away from the touch price faster than most people expect.

What it does to a strategy

Worked example

A profitable system, after costs

200 trades a year, average gain 0.9% per trade

Gross edgeWhat the backtest showed0.90% per trade

Spread, both waysLiquid largecap; far worse in a midcap−0.12%

Impact costDepends entirely on your size versus the book−0.10%

Brokerage, STT, stamp, GSTRound trip−0.35%

Net edgeA third of what the backtest reported0.33% per trade

The same system in a thin midcapSpread and impact alone exceed the edgeBelow zero

The strategy did not change. Where it was traded did. A short-horizon edge that works on liquid largecaps can be structurally impossible in a stock trading a crore a day, and no amount of refining the signal will fix that.

Reducing it

Five practical measures

1
Filter by traded value, not price
A minimum daily turnover requirement removes most of the problem before it starts. Cap your position at a small percentage of it.
2
Use limit orders where you can
Market orders guarantee execution, not price. In anything but the most liquid names, a limit order at or near the touch is worth the occasional missed fill.
3
Avoid the first and last few minutes
Spreads are widest at the open and the close. Unless your strategy specifically needs those windows, the middle of the session is cheaper.
4
Break up large orders
Several smaller orders over a period consume the book less aggressively than one large one.
5
Measure your actual slippage
Record intended price against fill price for a month. Most people have never measured it and are surprised by the total.

Check yourself

A strategy shows a 0.6% average gain per trade in a backtest run on closing prices. Realistic round-trip costs are 0.5%. What is the honest conclusion?

Simple bhasha mein

Board pe ₹500, counter pe do hi seat

Board pe ticket ₹500 dikh raha hai. Counter pe pata chala ₹500 wali sirf do seat hain, baaki ₹560 ki. Aapko chhe chahiye — toh aapka average ₹500 nahi hua. Chart bhi wahi board hai: woh last traded price dikhata hai, yeh nahi ki utni quantity thi bhi ya nahi.

What to remember

The chart shows a traded price, not a price available to you in your size.
Spread, impact and timing stack on top of brokerage and taxes.
The shorter the holding period, the more slippage decides viability.
Filter by daily traded value and cap position size as a share of it.
Subtract realistic round-trip costs from a backtest before believing it.

You reached the endMark it done and keep your streak going.

Up nextWhen is a system actually dead?Previous: The squeeze: quiet before the move

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Common questions

Short, direct answers to what people ask about this topic.

slippage meaning in trading: Slippage is the difference between the price you expected to trade at and the price you actually got. It comes from three stacked sources — the bid-ask spread you cross going in and coming out, the impact of your own order eating through successive levels of the order book, and the price moving between your decision and your execution. None of it appears on the chart, which is why backtests run on closing prices systematically overstate what a strategy earns.
the gap between the best bid and the best ask on the order book is called: The bid-ask spread. It is the smallest cost you pay on every trade in both directions, it widens as a stock gets thinner, and it is widest in the first and last few minutes of the session. Depth is a separate question: the spread tells you the price of the first share, while market depth tells you how many shares exist at that price before your order has to reach up to worse ones.
why is my fill price worse than the price i saw on the chart: Because the chart shows a price at which somebody traded, not a price available to you in your size. The last traded price sits at the top of an order book holding a finite number of shares at each level, so a large order consumes the best level and then the next, and your fill is the average of everything you had to take. In a liquid largecap that gap is small; in a thin midcap a modest order can move the price several percent.
does a strategy that makes 0.6% per trade still work after costs: Not with any confidence if realistic round-trip costs are around 0.5%. That leaves a 0.1% net edge, which sits well inside the error of any cost estimate — and slippage worsens in exactly the fast, gapping conditions short-horizon strategies trade in. Costs here mean the spread both ways, impact cost, brokerage, STT, stamp duty and GST added together, and this is the single most common way a backtest looks profitable and loses money live.
market order or limit order in an illiquid stock: Limit orders are the usual answer in anything but the most liquid names, because a market order guarantees execution but not price — in a thin book it can walk several levels up before it fills. The trade-off is that a limit order at or near the touch will occasionally miss the fill entirely. Breaking a large order into smaller pieces over a period also consumes the book less aggressively than one big order does.