While slippage is often seen as an inconvenience, it is not always a negative event. In some cases, slippage can result in a better execution price than initially expected, potentially benefiting the trader. However, in other instances, it may lead to higher-than-anticipated costs or unfavorable prices.

Slippage occurs when a trade is executed at a price different from the expected one. This can happen across various markets, including stocks, forex, cryptocurrencies, and commodities. Slippage is neither inherently good nor bad—it depends on whether the execution price is better or worse than anticipated. Below, we’ll explore the factors that cause slippage and how it can impact your trades:

Causes of Slippage

a. Market Volatility

• Description: In volatile markets, prices can move rapidly between the time you place an order and when it is executed.
• Example: During news events, earnings reports, or major economic releases, prices might fluctuate dramatically, resulting in slippage.

b. Low Liquidity

• Description: If there aren’t enough buyers or sellers to fill your order at the desired price, your trade may execute at the next available price.
• Example: In illiquid markets or outside regular trading hours, slippage is more likely because of fewer participants.

c. Order Type

• Market Orders: Prone to slippage because they execute at the best available price, which may not match the requested price.
• Limit Orders: Avoid slippage by setting a specific price, but they may not execute if the market doesn’t reach the limit price.

d. Latency

• Description: Delays in order execution due to slow internet connections or system lags can result in slippage, especially in high-frequency trading.

e. Gaps in Pricing

• Description: Price gaps occur when there is a sudden jump in price between two consecutive trading periods, such as during market openings or after major news.
• Example: A stock closes at $100 but opens the next day at $110. Any orders placed overnight will execute at the new price, not the previous close.

At Eurotrader, we use market execution, meaning all orders are sent directly to the market for fulfillment at the best available price. 

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