slippage - definition

Slippage is the difference between the expected price of a trade and the price at which the trade is actually executed. It occurs when market volatility or insufficient liquidity prevents an order from being filled at the requested price. Slippage applies to market orders and stop-loss orders; limit orders typically do not experience slippage because they execute only at the specified price or better.

Formula

Slippage (in pips) = Filled price - Requested price

Example: Requested price = 0.7250 AUD/USD, filled price = 0.7248 AUD/USD → Slippage = -2 pips (negative = favourable slippage).

Example

A trader places a market order to buy 10,000 AUD/USD at a requested price of 0.7250. Due to a sudden news release, liquidity thins and the order fills at 0.7255. The slippage is +5 pips (unfavourable). The trader pays an extra $5.00 AUD on the trade (5 pips × $1.00 per pip for 10,000 units).

Edge cases

JPY pairs: Slippage is measured in pips but the pip value is the second decimal place (e.g., USD/JPY at 110.50 → 1 pip = 0.01). A 3-pip slippage on USD/JPY equals 0.03 price movement.
ASIC regulation: Australian brokers must disclose slippage policies in their Product Disclosure Statement (PDS). Some brokers guarantee no slippage on stop-loss orders during normal market conditions, but this does not apply during high-impact news events.
Non-standard lot sizes: Micro lots (1,000 units) have lower pip values, so the same pip slippage results in a smaller dollar impact compared to standard lots (100,000 units).

See also