Reviewed by Gotrade Internal Analyst
You place an order, you see a price on your screen, but when the trade fills the final price is slightly different. That difference is called slippage.
Slippage is a normal part of trading, but if you ignore it, it can quietly eat into your returns over time.
This guide explains what slippage is, what causes it, and practical ways to reduce it as a retail investor.
What Is Slippage?
Slippage is the difference between the price you expected to get when you placed an order and the actual price where your trade was executed.
- If you get a worse price than expected, that is negative slippage.
- If you get a better price than expected, that is positive slippage.
Slippage can happen when you buy or sell stocks, ETFs, options, or other assets, especially in fast moving or thin markets.
How Slippage Shows Up When You Trade
Market orders
A market order tells the broker to execute your trade immediately at the best available price.
Example:
You see a stock quoted at 50.00 and place a market buy order for 100 shares.
By the time your order reaches the market, the best ask has moved to 50.20.
Your order fills at 50.20.
- Expected price: 50.00
- Actual price: 50.20
- Slippage: 0.20 per share
You still got filled quickly, but at a slightly worse price.
Limit orders
A limit order sets a maximum price you are willing to pay to buy, or a minimum price you will accept to sell.
Limit orders protect you from extreme slippage, but you can still see small differences due to partial fills or price improvement.
Example:
- You set a buy limit at 50.00.
- Some shares fill at 49.98, some at 50.00.
- Your average price is 49.99.
In this case, you have a tiny bit of positive slippage.
Common Causes Of Slippage
1. Market volatility
When prices move quickly, quotes can change in fractions of a second.
By the time your order is routed and matched, the price may already be different.
Volatility often spikes around:
- Earnings announcements
- Economic data releases
- Central bank decisions
- Breaking news
2. Low liquidity
Slippage is more likely when you trade assets that do not have many buyers and sellers.
Signs of low liquidity:
- Thin order book
- Low daily volume
- Big gaps between price levels
In those situations, your order may need to match with less favorable prices to get filled.
3. Wide bid ask spreads
The bid is what buyers are willing to pay. The ask is what sellers are willing to accept. The difference is the spread.
If the bid is 10.00 and the ask is 10.30, the spread is 0.30. A market buy will likely fill near 10.30 straight away.
The wider the spread, the greater the potential slippage.
4. Large order size
If your order is large relative to available liquidity at the best price, it can “walk the book”.
Example:
There are only 200 shares available at 20.00, 300 at 20.05, 500 at 20.10.
If you buy 800 shares with a market order, you will likely get a blended price across those levels that is higher than 20.00.
5. Trading outside regular hours
In pre market and after hours sessions:
- Volume is usually lower
- Spreads are often wider
- Fewer participants are active
That combination makes slippage much more likely if you use market orders.
Positive vs Negative Slippage
Slippage is not always bad.
- Negative slippage: You pay more than expected when buying, or receive less when selling.
- Positive slippage: You pay less than expected when buying, or receive more when selling.
In practice, retail traders usually notice negative slippage more because it hurts.
The goal is not to eliminate slippage completely, but to reduce the negative side and avoid nasty surprises.
How To Reduce Slippage As A Retail Investor
You cannot control the market, but you can control how you place orders.
1. Use limit orders as your default
Limit orders let you define the worst price you are willing to accept.
- Buy with a buy limit at your preferred entry price or slightly better.
- Sell with a sell limit at your target exit.
You might not always get filled, but you avoid extreme slippage.
2. Trade highly liquid stocks and ETFs
Focus on:
- Large cap names
- High average daily volume
- Tight spreads
US stocks like Apple, Microsoft and major ETFs tend to have deep, liquid markets that reduce slippage risk.
3. Avoid illiquid or very thin names
Be cautious with:
- Low volume small caps
- Very cheap “penny” style stocks
- Niche ETFs with limited trading
If you do trade them, stick to limit orders and keep position sizes modest.
4. Be careful in pre market and after hours
Unless you have a specific reason, avoid using market orders outside regular hours.
Spreads can be much wider and slippage can be severe.
If you must trade, use limit orders and be conservative with your price.
5. Size your orders sensibly
If your order is large compared with normal volume, consider:
- Splitting it into smaller orders
- Letting it fill gradually at your limit price
This can help you avoid pushing the price against yourself.
When Slippage Matters Most
Slippage has the biggest impact when:
- You trade frequently
- You hold positions for very short periods
- Your strategy relies on small price moves
- You use leverage or margin
For longer term investors, small slippage on occasional trades is less critical, but it is still worth managing.
Conclusion
Slippage is the gap between the price you see and the price you actually get.
It is caused by volatility, liquidity, spreads, order size and timing.
You cannot remove slippage completely, but you can reduce it by:
- Using limit orders
- Trading liquid names
- Avoiding thin or off hours markets
- Being smart with order size
Apps like Gotrade give you access to US stocks and ETFs from small amounts, while letting you choose order types that match your risk comfort so you stay more in control of your entry and exit prices.
FAQ
- Is slippage always bad?
No. Slippage can be positive or negative. The focus is on reducing large negative slippage that hurts your returns. - Which order type has more slippage?
Market orders usually have more slippage because they prioritize speed over price. Limit orders help cap the worst price you accept. - Can I completely avoid slippage?
No. Slippage is part of trading in live markets. You can only manage and reduce it with good execution habits.
Reference:
- CFI, Slippage, 2026.
- FundedNext, What is slippage? Understanding Slippage in Trading, 2026.
Disclaimer:
Gotrade is the trading name of Gotrade Securities Inc., which is registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
