How Market Liquidity and Price Gaps Cause Positive or Negative Slippage
Summary
Slippage is the gap between an expected or trigger price and the eventual execution price. The document explains that prices can jump past a stop level, so a stop order may fill at the next available quote. Its gold example illustrates an adverse fill after a downward price gap, while a take profit may fill more favorably if the market moves past its target before execution.
It also describes how large orders can consume available liquidity at several price levels, producing a volume-weighted average fill rather than one price. Slippage is distinguished from the bid-ask spread: spread is visible in quotes, while slippage emerges between expectation and execution. These effects may be more pronounced around news, market openings, or fast moves. The discussion is qualitative and illustrative; it provides no measured slippage rates or systematic comparison across venues, assets, or order types.
Key ideas
- Slippage is the difference between an expected price and the final execution price.
- A fast price gap can cause a stop order to execute beyond its trigger at the next available price.
- Slippage can be favorable or unfavorable, depending on market movement and order direction.
- Large orders may fill across several price levels when liquidity at one level is insufficient.
- The bid-ask spread is a quote difference, whereas slippage is an execution difference.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.