Most traders assume their first real lesson in slippage comes from a losing trade. It doesn't. It comes from a winning trade where the numbers still don't add up. You bought at $10.00, sold at $10.40, yet your account shows less profit than expected. That gap — unexplained, frustrating — is slippage doing its quiet work.

Slippage is the difference between the price you expected your order to fill at and the price it actually filled at. It isn't a fee or a bug. It's a market reality: by the time your order reaches the exchange and finds a matching seller or buyer, the price has moved. Sometimes that movement favours you. Usually it doesn't.

CONCEPTSlippage occurs when your order fills at a different price than requested — it's a cost built into market execution itself.
WARNINGIgnoring slippage in your strategy backtest can make a losing system look profitable on paper.
KEY IDEASlippage is worst in fast-moving, low-liquidity markets — exactly the conditions where traders most want to act quickly.

Picture this scenario with real numbers. You place a market order to buy 10,000 shares of a mid-cap stock at an expected price of $5.00. The order book shows 3,000 shares available at $5.00, another 4,000 at $5.02, and the remaining 3,000 at $5.05. Your order sweeps all three levels. Your average fill price becomes $5.023 — not $5.00. That $0.023 slippage costs $230 on a single trade.

Order Book Fill — 10,000 Shares$5.003,000 shares$5.024,000 shares$5.053,000 sharesAvg fill: $5.023 — Slippage cost: $230

Slippage hurts most in three specific conditions: during high-volatility news events when prices move faster than orders can settle; in thinly traded markets where the order book is shallow and large orders consume multiple price levels; and when using market orders rather than limit orders — which cap your fill price but carry their own risk of non-execution. Traders who test strategies historically often find that accounting for even 0.05% slippage per trade dramatically changes long-run results. Learning exactly how order types interact with liquidity is foundational — resources like Investopedia's slippage definition, the mechanics behind how order books work, and a deeper look at limit orders on Investopedia are worth understanding thoroughly before sizing up.

Slippage isn't the enemy — ignorance of it is. Build it into your numbers from day one and it stops being a surprise.

This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.