how does slippage work 
slippage does not denote a negative or positive movement because any difference between the intended execution price and actual execution price qualifies as slippage when an order is executed the security is purchased or sold at the most favorable price offered by an exchange or other market maker this can produce results that are more favorable equal to or less favorable than the intended execution price the final execution price vs the intended execution price can be categorized as positive slippage no slippage or negative slippage market prices can change quickly allowing slippage to occur during the delay between a trade being ordered and when it is completed the term is used in many market venues but definitions are identical however slippage tends to occur in different circumstances for each venue while a limit order prevents negative slippage it carries the inherent risk of the trade not being executed if the price does not return to the limit level this risk increases in situations where market fluctuations occur more quickly significantly limiting the amount of time for a trade to be completed at the intended execution price investors can avoid negative slippage by placing limit orders example of slippageone of the more common ways that slippage occurs is as a result of an abrupt change in the bid ask spread a market order may get executed at a less or more favorable price than originally intended when this happens with negative slippage the ask has increased in a long trade or the bid has decreased in a short trade with positive slippage the ask has decreased in a long trade or the bid has increased in a short trade market participants can protect themselves from slippage by placing limit orders and avoiding market orders for example say apple s bid ask prices are posted as 183 50 183 53 on the broker interface a market order for 100 shares is placed with the intention the order gets filled at 183 53 however micro second transactions by computerized programs lift the bid ask spread to 183 54 183 57 before the order is filled the order is then filled at 183 57 incurring 0 04 per share or 4 00 per 100 shares negative slippage slippage and the forex marketforex slippage occurs when a market order is executed or a stop loss closes the position at a different rate than set in the order many traders and investors use stop loss orders to limit potential loss an alternative approach is to use option contracts to limit your exposure to downside losses during fast moving and consolidating markets slippage is more likely to occur in the forex market when volatility is high perhaps due to news events or during times when the currency pair is trading outside peak market hours in both situations reputable forex dealers will execute the trade at the next best price ways to reduce the impact of slippageslippage is a part of investing although there are some ways to avoid it or limit its impact slippage usually occurs when markets are volatile or liquidity is lacking so timing and the type of security you re trading can play a big roletrade in calm momentsthe less volatility in the market the less chance you have of getting caught out by slippage if you want to limit slippage don t invest around the time of major economic announcements or important updates relating to a security you wish to trade such as an earnings report these types of events can move markets significantly and lead prices to jump around place limit orders insteadmarket orders are transactions to be executed as quickly as possible whereas limit orders are orders that will only go through at a specified price or better if you place a limit order you can avoid negative slippage however there is also the risk that the order doesn t get executed some platforms allow investors to place an order while specifying the maximum amount of slippage they are willing to accept in percentage terms 