Slippage, Liquidity, and Execution: Understanding Market Fill Prices
Summary
The document explains why an executed trade can differ from the price a trader expected, focusing on stop and take-profit orders. Prices may move in jumps, leaving a stop level untraded; the order then fills at an available price beyond the trigger. The examples show that this can be adverse for a stop loss or favorable for a take profit, so slippage is not inherently negative.
It also describes how a large order may be split across multiple price levels when available liquidity cannot fill it at one quote. The resulting average price differs from any single displayed level. The article distinguishes this execution effect from the bid-ask spread, while noting that both may become more noticeable during fast markets, news, or market openings. Examples are illustrative and do not quantify typical costs, compare venues, or address how specific order types and broker rules affect fills.
Key ideas
- Slippage measures the difference between an expected or trigger price and the execution price.
- A price jump can cause a stop order to fill beyond its trigger because the trigger price may not trade.
- Favorable as well as unfavorable slippage can occur.
- Large orders can consume liquidity across multiple prices and receive a blended average fill.
- Spread and slippage are distinct costs, although they can coincide during volatile conditions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.