It is not always against you
Slippage is usually described as a loss; in a normal market it is statistically neutral, filling worse as often as better. What tilts it against a trader is when they trade — because the moments slippage worsens are exactly the moments everyone is pushing the same direction.
Three moments magnify it: an economic release, the open after a weekend, and the end of a session as liquidity withdraws. The root cause is the same in all three: liquidity is no longer deep enough to absorb orders at the quoted price.
Slippage and your stop loss
Here slippage becomes a risk question rather than a cost one. A stop loss is a market order triggered at a level and then filled at the best available price — not necessarily the price you wrote. Across a sharp gap it can fill far beyond it, losing more than planned.
So "risking 1%" is an estimate, not a guarantee. Sizing on the assumption that a stop fills exactly at its number builds on unstable ground, particularly around news. See order types.
Where this cost sits in the stack
The cost of a trade is not one number but a stack: the spread is paid once on entry, slippage may be added on entry and again on exit, and swap repeats every night. Liquidity and volatility are not direct costs, but they set the size of the first two layers.
Measure the spread alone and the trade looks like it costs $3; held over three nights the real figure is closer to $9.50. That gap is not an accounting detail: if you risk 1% of a $1,000 account — $10 — the stack has consumed almost the entire trade before price has moved at all.
The formula
Slippage = actual fill price − requested price (negative or positive)
A worked example
On the reference account — 0.10 lots of gold, 10 ounces — 20 cents of slippage is $2. It looks trivial until you set it against $10 of risk: slippage alone consumed 20% of the risk before anything else.
Repeated on the exit it becomes $4, or 40%. This is why slippage is measured as a share of risk rather than in absolute terms, and why that ratio is what kills small-target strategies specifically.
Common mistakes with this term
- Accusing a broker of manipulation at every slip, when much of it is a natural result of thin liquidity at execution.
- Assuming a stop loss guarantees an exit at its exact price, which gaps do not honour.
- Measuring slippage in dollars instead of as a share of risk, so it looks small while eating a quarter of the trade.