Slippage: Why Orders Fill at Worse Prices Than Expected

What slippage is

Slippage is the difference between the price you expected and the average price at which you were actually filled. If you saw 100 on screen, bought at market and were filled at an average of 100.12, you slipped by 0.12. The number depends on what you take as the expected price; common choices are the best quote just before ordering, the midpoint between the best bid and ask, or, in a backtest, the price the rule assumes (for example, the next candle's open). Slippage does not appear as a separate line on a statement the way fees do, so it is easy to overlook, but it adds up as a real cost every time. The basic structure of the order book is covered in the guide on the order book and order types; this guide looks at how slippage arises from that structure and how to size it.

Why slippage happens

Slippage comes from several overlapping causes. The most basic is the gap between the best bid and the best ask (the spread). A market buy fills at the ask and a market sell at the bid, so measured from the midpoint you pay half the spread on each side. Next is depth. An order larger than the quantity at the best price fills against the next price level and the one after that, so the average fill price gets steadily worse. Last is time. The price can move between sending an order and its reaching the exchange, or between a conditional order triggering and filling.

• Spread: the gap between the best bid and best ask
• Depth: an order larger than the quantity at one price fills across several prices
• Latency: price changes while the order travels or after a conditional order triggers
• Sudden moves: moments when news or a liquidation cascade briefly empties the book

A worked example

For example, suppose the asks are 0.5 units at 100.0, 1 unit at 100.1 and 2 units at 100.3, and the best bid is 99.9. A market order to buy 2 units fills 0.5 at 100.0, 1 at 100.1 and the remaining 0.5 at 100.3. The amount paid is 50 + 100.1 + 50.15 = 200.25, an average fill of 100.125. Compared with the best ask of 100.0 you saw on screen, that is about 0.125% worse; compared with the midpoint of 99.95, about 0.175% worse. Had you bought only 0.5 units from the same book, everything would have filled at 100.0, with zero slippage against the best quote. Slippage is a property of the market and, at the same time, a property of your order size.

The market versus limit trade-off

A market order fills immediately against resting quotes, so the fill is certain but the price depends on the state of the book. A limit order fills only at your price or better, so it does not slip, but if the price never reaches it, it may not fill at all or only partly. If the price runs away while you wait with a limit order, the cost of the missed fill can exceed the slippage you avoided. Stop orders work the same way. A stop that becomes a market order when triggered will fill, but in a crash it can fill far worse than your stop price; a stop that becomes a limit order protects the price but may not fill if the market moves through it quickly. More on order types is in the guide on brokerage order types.

When slippage grows

Even for the same asset, book depth varies a lot over time. At times like those below, the same order size tends to slip more. In particular, stop-losses and liquidations on leveraged positions pile into market orders at moments when price is moving fast, so allow in advance for actual fills being worse than the stop or liquidation price shown by a calculator.

• Coins or stocks with small trading value
• Thin hours such as weekends, late nights and holidays
• Right after a new listing or major news
• Moments of sharp drops or spikes when liquidations cascade
• When your order is larger than the quantity in the first few price levels

Counting it as a cost

The round-trip cost of buying and selling once can be thought of roughly as fees × 2 + spread + slippage. Each piece looks small, but with frequent trading they add up fast. For example, with fees of 0.1% each way and slippage of 0.05% each way, a round trip costs about 0.3%, and 100 round trips a year add up, by simple sum, to about 30 percentage points of cost. That is why slippage assumptions change results most for strategies that trade often on short candles. When reading a backtest, do not take results with zero slippage at face value; for thinly traded assets or short candles, put in generous slippage and see how much the result shrinks. More on trading frequency and costs is in the guide on how frequent trading leaks money.

Estimating slippage in advance

You can estimate slippage to some extent before ordering. Compare the quantity in the first few levels of the order book with your order size, and you can work out, as in the example above, how many levels you will consume and your average fill. But the visible book is a momentary picture: quotes can be cancelled or changed before your order arrives, and a large quote is no guarantee of a real order that will trade. Splitting orders or using limit orders reduces slippage in exchange for taking on the risk of not filling or of price changes over time, so neither is better by rule. Recording your actual average fill and comparing it with the price just before ordering tells you, in numbers, how much slippage your own trading has.

Using the tools on this site

This site's Crypto Order Book Auction receives Binance quotes, 20 levels every second and 500 levels every 10 seconds, and shows the bid-ask volume ratio, market depth, large walls and big trades, which you can use to gauge how many levels your order would reach. The Crypto Strategy Backtester calculates buy fills as open × (1 + slippage) and sell fills as open × (1 − slippage), with a default slippage of 0.05% and fees of 0.1% that you can change, so you can see right away how results shift with cost assumptions. The Stock Strategy Backtester likewise compares results with costs included, using historical prices of Korean and foreign stocks. Common misreadings of the order book are covered in the guide on how to read the order book.

Limits and disclaimer

The quote and cost figures in this guide are examples to show the calculation; they are not real market values. Actual slippage varies greatly with the exchange, asset, time, order size and market conditions, and the visible quotes can change before your order arrives. Order types and matching rules differ between exchanges, so check that exchange's documentation before placing real orders. This guide explains how fills and slippage work, does not recommend any trade and is not investment advice.