Slippage refers to the difference between the expected price of a trade and the actual executed price. This phenomenon typically occurs in fast-moving markets where prices can change rapidly. For instance, when an order is placed, the market may have already moved from the expected price, leading to an execution at a less favorable rate. Slippage can happen during periods of high volatility, low liquidity, or when large orders are executed. There are two types of slippage: positive, where the execution price is better than anticipated, and negative, where it is worse. Traders should be aware that slippage is a common aspect of trading, and understanding its implications is essential for effective risk management.
Risk Management