TL;DR
Slippage is the gap between the price you intended to trade at and the price you actually got — caused by market movement during order processing and limited liquidity at your target price, and it is the most common reason live trading underperforms backtesting.
What Is Slippage?
Slippage is the difference between the expected execution price of a trade and the actual fill price received. When you place a market order to buy at $100, the actual fill might be $100.05 — that $0.05 per share is slippage. It occurs because the market moves between the moment your order is submitted and when it is executed, or because the available volume at your target price is insufficient to fill your entire order.
Slippage takes two forms. Market slippage occurs when price moves adversely during the brief window of order transmission and matching — even a 10-millisecond delay in a fast-moving market can result in meaningful slippage. Volume slippage occurs when your order size exceeds the available liquidity at a specific price level, forcing your order to fill at progressively worse prices as it consumes successively higher (or lower) bids and offers.
For most retail traders in liquid markets, slippage is a manageable few cents per share. For high-frequency strategies, scalpers, or traders operating in thin markets (small-cap stocks, illiquid crypto, index futures in off-hours), slippage can be the difference between a profitable strategy and a losing one. In backtesting, slippage is almost always underestimated — historical fill assumptions of “filled at the close price” or “filled at the signal bar price” routinely overstate what was realistically achievable.
Key Formula / Numbers
Slippage per trade = |Expected Fill Price - Actual Fill Price|
Slippage as % of trade = Slippage / Expected Price × 100
Annual slippage cost = Slippage per trade × Trades per yearTypical slippage ranges by market:
| Market | Typical Slippage |
|---|---|
| Large-cap stocks (liquid) | 0.01–0.05% per trade |
| Index futures (liquid session) | 0.01–0.03% per trade |
| Small-cap stocks | 0.1–0.5% per trade |
| Crypto (major pairs) | 0.05–0.2% per trade |
| Crypto (small caps) | 0.5–2.0%+ per trade |
How Quantzee Uses This
Quantzee indicators generate signals at bar close — not on tick-by-tick basis — which naturally reduces one form of slippage risk by anchoring entries to a defined price rather than an intrabar level. When building strategies using Quantzee signals in Pine Script’s Strategy Tester, including a realistic slippage assumption (typically 1–2 ticks) in the strategy settings gives a more accurate representation of live performance than the default zero-slippage assumption.
Common Mistakes
- Ignoring slippage in backtesting: Most backtesting platforms default to zero slippage and instant fills at bar close. A strategy that trades frequently in moderately liquid markets with zero modeled slippage can show dramatically overstated results — always add realistic slippage assumptions before evaluating any backtest.
- Using market orders in illiquid markets: A market order in a thin-market instrument (penny stocks, small-cap crypto, illiquid futures) guarantees adverse slippage because there is no depth at your target price. Use limit orders where possible in low-liquidity environments.
- Overlooking impact scaling: Slippage increases with order size — a $1,000 trade in a liquid market may incur negligible slippage, while a $100,000 trade in the same instrument can move the market against you. Always consider your order size relative to the typical volume at that level.
Related Terms
FAQ
What is slippage in trading?
Slippage is the difference between your intended trade price and your actual fill price — caused by market movement during order processing or insufficient liquidity at your target price level.
How do you reduce slippage?
Slippage can be reduced by trading in highly liquid markets during peak volume hours, using limit orders instead of market orders, splitting large orders into smaller chunks, and avoiding trades immediately around high-impact news events.
Does slippage affect backtesting results?
Yes significantly — backtesting without realistic slippage assumptions overstates performance, particularly for high-frequency strategies or strategies trading in thin markets where actual fills would be noticeably worse than the modeled price.