Slippage is the difference between the price you expected to fill at and the price you actually filled at. It can be positive (filled better than expected) or negative (filled worse than expected), and over time the negative side dominates because the orders most prone to slippage — market orders during fast moves and stop orders triggering on gaps — execute precisely when liquidity has thinned. Slippage is a separate cost from spread; it is a fill-quality issue, not a quoted cost.
It shows up most often on news releases, market opens, weekend gaps, and the moment a level breaks and stop orders cluster behind it.
Formula
Slippage (pips) = |intended price - filled price|
Slippage cost ($) = Slippage in pips x pip value (negative if adverse)
Worked example
You set a stop-loss on a long EUR/USD 1.0-lot position at 1.0820. NFP prints, price gaps from 1.0825 down through your stop. Your stop triggers as a market order and fills at 1.0808.
- Intended exit: 1.0820
- Actual exit: 1.0808
- Slippage: 12 pips adverse
- Cost beyond plan: 12 x $10 = $120 extra loss
A trader who sized the position assuming a 30-pip risk just took a 42-pip loss — 40% larger than planned.
Why it matters
Slippage is why backtest results almost always overstate live performance. A strategy that looks robust at 50 bps drawdown can show 80 bps live once realistic slippage is layered onto stop-outs. It also disproportionately hurts breakout strategies, which by design chase moves into thinning liquidity.
Common pitfalls
- Assuming guaranteed stop-loss orders are the default — most brokers offer them as a paid add-on, and standard stops are not slippage-protected.
- Overfitting a backtest to tick data with no slippage model, then being surprised when live equity diverges within weeks.
- Holding through scheduled news without reducing size — a single CPI print can deliver a quarter of a year's drawdown in 200 milliseconds.