Why slippage happens
- The bid-ask spread: a market buy fills at the ask, not the last traded price.
- Market impact: a large order uses up the quantity at the best price and fills the rest at worse prices.
- Speed: the price moves between the moment you decide and the moment the order reaches the exchange.
- Fast markets: stop losses trigger and fill well beyond the trigger price when prices jump.
How to measure it
Formula
Slippage per unit = average fill price − expected price, for a buy. For a sell, slippage = expected price − average fill price. Total slippage = slippage per unit × quantity.An example
Example
You buy 10 lots (650 units) of the Nifty 25,000 call expecting ₹280.50. The order fills at an average of ₹281.40. Slippage is ₹0.90 a unit, or 0.90 × 650 = ₹585, on top of brokerage and taxes.
Why slippage matters for strategies
Slippage repeats on every order. A strategy with four orders a day, each one point worse than planned on 65 units, loses ₹260 a day to slippage, or about ₹62,000 over 240 trading days. Strategies with small average profits per trade are hit hardest, which is why a backtest should always include slippage.
How to reduce slippage
- Use limit orders priced near the best bid or ask.
- Trade liquid contracts: at-the-money index options usually have tighter spreads than far strikes. See liquidity.
- Avoid the first minutes after the open and big news releases, when spreads are widest.
- Split large orders with an iceberg order.
- Leave a buffer in stop losses between the trigger and the limit price.
Related terms
Learn more
Frequently asked questions
Can slippage be positive?
Yes. Sometimes the fill is better than expected, but over many trades slippage is usually a cost.
Do limit orders avoid slippage?
A limit order never fills worse than its price, but it may not fill at all. The cost moves from slippage to missed trades.
How much slippage should I assume in a backtest?
For liquid Nifty options, one point per order is a cautious start. Use more for thinner contracts and for stop losses.
Trading involves substantial risk. Examples on this page are hypothetical and are not investment advice.