Slippage: the difference between the quote and the fill
Slippage is the gap between the price on screen when you pressed the button and the average price you actually received. It is not a fee, nobody collects it, and on a large order in a thin market it can cost more than every fee you paid that month.
- Live product data
- Self-custodial
- Human confirmed
A book has depth, not a price
The number quoted as "the price" is the best bid or the best ask, which is only the price of the first slice of size available. Behind it sits the rest of the book at progressively worse levels. A market order does not buy at the top of the book, it walks down the book until it is filled, and your fill is the size-weighted average of everything it consumed.
What that costs, worked out
Suppose you market buy five units. The book offers one unit at one hundred thousand, two units at one hundred thousand and twenty, and five units at one hundred thousand and eighty. Your order takes the first one, then the two, then two of the five, so you pay five hundred thousand two hundred in total. The weighted average is one hundred thousand and forty, which is forty dollars a unit above the price you saw, or four basis points, and two hundred dollars across the whole order. The same order into a book with ten units resting at the top would have filled at one hundred thousand flat, for nothing. Nothing about the market changed between those two cases except depth.
Slippage, spread and fees are three separate costs
The spread is the standing gap between the best bid and the best ask, and you pay half of it on entry and half on exit simply by crossing. The fee is charged by the venue as a percentage of notional. Slippage is what the size of your own order did to the price on top of both. Traders who compare venues on fees alone routinely pick the more expensive one, because a venue with a lower fee and half the depth loses the difference on the first fill.
What makes it worse
Slippage scales with the mismatch between your size and the liquidity available at that moment.
- Order size relative to resting depth, which is the dominant term
- Volatility: market makers widen quotes and pull size when the price is moving fast
- Hours: an equity or commodity perp outside the session of its underlying market has a thinner book
- Long-tail markets, where the top of the book can be a few thousand dollars of size
- Cascades: during a liquidation run the book is being consumed by forced orders alongside yours
How to reduce it
Use a limit order when you have a price in mind and the patience to wait, because a limit order cannot fill worse than the price you set. Use the slippage tolerance control if the venue has one, which rejects the fill instead of accepting a bad one. Split a large order into pieces separated in time so the book can refill between them. Trade the market during the hours its underlying is liquid. And read depth rather than spread when comparing venues, because a tight spread on ten dollars of size is decoration.
The cost of avoiding it
Every one of those techniques trades slippage for the risk of not trading. A limit order that never fills has a cost too, and in a trending market it is usually larger than the slippage it avoided. The honest framing is that you are choosing between a known cost you can measure and an unknown cost you will only see in hindsight, and that the right choice depends on whether the trade is time sensitive.
Frequently asked questions
- Is slippage a fee?
- No. Nobody receives it as revenue. It is the price impact of your own order moving through the book, and it goes to whoever had resting orders at the worse levels you consumed.
- What is a reasonable slippage tolerance?
- It depends on the market rather than on a universal number. A deep major pair should fill within a few basis points, so a tolerance measured in tenths of a percent is generous. A long-tail market may need a percent or more, and if it does, that is a signal about your size rather than about the setting.
- Does slippage apply when I close as well?
- Yes, and it is usually worse. Exits are more likely to happen when the market is moving, and a stop that triggers into a fast move is a market order arriving at exactly the moment the book is thinnest.
- Do limit orders eliminate slippage?
- They eliminate negative slippage on price and replace it with fill risk. A limit order fills at your price or better, or it does not fill. Whether that is an improvement depends entirely on what happens to the market while you wait.
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Perpetual futures are leveraged instruments and can lose more than your initial margin. Nothing on this page is investment advice.