Execution & trading costs

Slippage

Slippage is the difference between a trade’s expected price and its actual fill price, expressed per share, as a percentage or in total dollars.

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What it means

An order may fill at a different price from the one a trader expected when deciding to place it. That difference is called slippage. The reference price might be the displayed quote, the midpoint or the price observed when the decision was made (the arrival price). State which reference you use: the same fill can produce different slippage figures against different benchmarks.

For a buy, a higher fill price is unfavorable; for a sell, a lower fill price is unfavorable. The reverse is favorable slippage. A fill can differ from the reference because quotes change, available shares at the quoted price are exhausted, or the order itself moves the market. The bid-ask spread can also contribute when the reference is a midpoint rather than an executable quote.

Slippage describes an observed difference after execution. An estimate made before trading is an estimate of possible execution cost, not a known future fill.

How it is calculated

Use a signed formula so that a positive result always means an unfavorable price difference:

Slippage per share = side × (average fill price − reference price)

  • Side is +1 for a buy and −1 for a sell; it has no unit.
  • Average fill price is the quantity-weighted average of actual fill prices, in US$ per share.
  • Reference price is the chosen benchmark, in US$ per share.
  • Slippage per share is in US$ per share; a negative result is favorable.

Total slippage = slippage per share × shares filled gives the difference in US$ for the filled shares. Slippage rate = slippage per share ÷ reference price × 100 gives a percentage, provided the reference price is positive. These formulas compare prices, not commissions or other separately charged fees. For a partially filled order, calculate against the number of shares actually filled, not the original order size.

Worked example

Suppose, hypothetically, an investor observes an arrival price of US$50.00 per share and submits an order to buy 200 shares. The order fills in two parts: 100 shares at US$50.10 and 100 at US$50.20.

  1. Calculate the quantity-weighted average fill: [(100 × US$50.10) + (100 × US$50.20)] ÷ 200 = US$50.15 per share.
  2. For a buy, subtract the arrival price: US$50.15 − US$50.00 = US$0.15 unfavorable slippage per share.
  3. Multiply by filled shares: US$0.15 × 200 = US$30 total slippage.
  4. Express it as a rate: US$0.15 ÷ US$50.00 × 100 = 0.30%, or 30 basis points.

The calculation does not show why the price changed. Identifying causes requires more information, including the quotes and available liquidity during execution.

Why it matters before you trade

A quote is not a guarantee that an entire order will fill at that price. Order size relative to trading volume, the bid-ask spread, available market depth, volatility and execution conditions can all affect the difference between an expected and an actual fill. A market order prioritizes execution over a specified price; a limit order sets a price boundary but may remain unfilled or fill only partly.

A pre-trade check can assess plausible costs and constraints before an order exists. After a trade, comparing fills with a clearly recorded benchmark makes the measured slippage interpretable. Slippage is related to transaction costs and market impact, but those terms are not interchangeable: market impact concerns price movement associated with trading, while slippage records a difference against a chosen reference.

How PreTrAIde uses it

PreTrAIde does not report a guaranteed slippage figure or execute orders. Its pre-trade analysis estimates the bid-ask spread and market impact, measures participation in daily volume, and includes liquidity and execution scores when assessing a proposed stock basket. Its trading cost calculator covers estimated spread plus market impact. These estimates help frame potential execution costs; they are not actual fill prices or a promise of what slippage will be. Users place trades themselves through their own broker.

Common mistakes

  • Leaving the benchmark unstated. Slippage against an arrival price need not match slippage against the midpoint.
  • Treating every price difference as market impact. Quotes can change for reasons unrelated to one order.
  • Counting unfilled shares as executed. Price slippage applies to shares that filled; an unfilled remainder is a separate execution outcome.
  • Adding costs twice. A midpoint-based slippage measure may already reflect crossing part of the spread. Check what each reported cost includes before combining figures.

Frequently asked questions

Can slippage be positive or negative?

Yes. With the signed convention used here, positive slippage is unfavorable and negative slippage is favorable. Some platforms use different signs, so check their convention.

Does a limit order eliminate slippage?

A buy limit sets a maximum fill price and a sell limit sets a minimum, but either can fill at a price different from an earlier reference price. The order may also fill partly or not at all.

Is slippage the same as the bid-ask spread?

No. The spread is the difference between the displayed ask and bid. Slippage compares an actual fill with a chosen reference price and can reflect the spread, quote changes and other execution effects.

Related terms

Arrival price Arrival price is the market price recorded when an investment decision or order reaches the trading desk, used as a benchmark for measuring subsequent execution costs. Bid-ask spread Bid-ask spread is the difference between the lowest displayed price to sell a stock (ask) and the highest displayed price to buy it (bid), measured per share. Market impact Market impact is the price movement attributable to executing a trade, as the order consumes available liquidity or prompts other market participants to adjust their prices. Execution cost Execution cost is the amount paid to complete a trade beyond a chosen reference price, including the effect of the fill price and, when specified, trading fees. Limit order Limit order is an instruction to trade at a specified price or better: a buy cannot execute above its limit, and a sell cannot execute below its limit. Implementation shortfall Implementation shortfall is the difference between a trade’s hypothetical value at the decision price and its actual outcome, including execution costs and the cost of unfilled shares.

Execution & trading costs

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Educational content, not investment advice. PreTrAIde is analysis software, not a broker: it never executes orders, and its verdicts are decision support, not recommendations to buy or sell.