The term ‘slippage’ makes reference to a failure to meet expectation with regards to the execution of an order. Slippage is represented by the difference between a trader’s estimated transaction costs and the amount really paid due to market conditions or poor execution by the broker or spread betting provider. It reflects how an order’s fill execution price differs from the price level that was originally entered. For instance, if a sell stop loss order was placed at 1465 in the E-Mini S&P future contract and the order was filled at 1464.75, one would have experienced 1 tick of slippage on the order.
As far as spread betting stops, nobody will guarantee anything if you don’t pay an extra premium, in all the small print they all say they will apply slippage to a position unless you buy a ‘guaranteed stop’.
A market order is an order to transact a pre-specified number of shares at market price, which will cause an immediate execution, but is subject to price impact. Therefore, if you use a market order, there is no slippage. If you use a stop order, then when the market trades at your price, your stop becomes a market order and it gets filled at the current market price. You have slippage because you have a target price but you do not get it.Your stop price triggers the market order and the price you get depends on the liquidity of the market, the bid/ask spread, the size of the order and the market volatility. Slippage is common on stop orders.
“Spread Betting Beginner: Not brave enough to upgrade my IG Index from a limited account yet. I am happy ticking along with the restrictions IG keep placing on me. I opened a Finspreads account as well but they don’t offer controlled risk on much either. Problem I see without controlled risk is slippage. One bad RNS and even without being leveraged you can be stung. Maybe it is just me being namby pamby but I like the safety net controlled risk offers. Currently trying to pick a short or two in the retail/travel sector. I am finding resource stocks very limited due to the non-controlled risk problems.”
The more volatile the market, the bigger is the possibility of slippage. The more liquid the market, the smaller is the slippage. In some cases, it may even happen that you get a good fill below your stop price. The only way to avoid slippage is through the use of limit orders. By doing that, you demand a specific price to the market. Of course, the drawback is that you might miss a good profit because your order does not find a counterpart for the transaction and prices run immediately in your desired direction. If you trade within a short-term time frame using limit orders, you have to expect not to be filled every time. Note that if this can be accepted when you open a position, not being filled on a limit order might really be a problem when you want to close your position. Close monitoring of the market action is then required to make the proper decision. If you want to make sure that you are out of a position when you want to be, you have to enter a market or a stop order and accept slippage as an extra cost to pay for the certainty of the execution.