How Slippage Happens
When you place a market order, you expect it to fill at the price shown on your screen. But between the moment you click and the moment the order reaches the market, the price may have moved. This difference between the expected price and the actual fill price is slippage.
Slippage can be positive (you get a better price than expected) or negative (you get a worse price). Negative slippage is more discussed because it costs you money, but positive slippage happens just as often in a fair execution environment.
When Slippage Is Most Likely
Slippage increases in certain conditions:
- High volatility — during major news releases (NFP, central bank decisions), prices can move 20-50 pips in seconds
- Low liquidity — during market opens, closes, and the Asian session for most FX pairs
- Large order sizes — bigger orders take longer to fill and may be executed across multiple price levels
- Gaps — weekend gaps or gaps after holidays can cause significant slippage on stop orders
How Execution Infrastructure Affects Slippage
The broker's execution model plays a significant role. STP (Straight-Through Processing) and ECN (Electronic Communication Network) brokers route your orders directly to liquidity providers, typically resulting in faster fills and less slippage. The depth of the liquidity pool also matters — more providers mean more competition for your order and better fill prices.
Execution speed is measured in milliseconds. A broker with sub-50ms execution will generally produce less slippage than one with slower infrastructure, especially during volatile conditions.
Managing Slippage
You can't eliminate slippage entirely, but you can minimise it. Use limit orders instead of market orders when price precision matters. Avoid trading during the first few minutes of a session open. Be cautious around scheduled high-impact events. And trade liquid instruments — EUR/USD will almost always have less slippage than an exotic pair or a thinly-traded stock CFD.
Key Takeaways
- Slippage is the difference between expected and actual fill price
- It can be positive or negative — not always a cost
- Most common during high volatility, low liquidity, and large orders
- STP/ECN execution and deep liquidity pools reduce slippage
- Use limit orders when price precision is important
