The risk that price moves between filling one part of a multi-leg trade and the next, leaving you with worse economics or naked exposure.
Any strategy with more than one instrument has it: spreads, pairs, hedges, arbitrage, options combinations. The exposure lasts only seconds, but in those seconds you hold something you did not intend to hold.
A spread-order removes it at the cost of trading in a less liquid combination book. Manual legging can earn a better net price when you are patient and the legs are deep.
Example: you sell a call at 2.05 intending to buy the further-out call at 1.55 for a 0.50 credit. The underlying jumps; the second leg now costs 1.80 and your credit is 0.25. On 20 contracts with a 100 options-multiplier, that slip is $500 of pure execution loss.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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