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Market execution

An order model where the broker fills your order at the next available price with no requote, accepting slippage in either direction.

Market execution is now the default on most platforms. You are always filled, which matters for exits, but the price is not guaranteed. Slippage can be negative or positive, and a broker that only ever slips you one way is worth questioning.

Because the fill price is unknown at click time, stop-loss levels entered as part of the order are set relative to the actual fill. This is one reason backtests using ideal prices overstate results.

Example: 100 trades on a news-heavy month show an average negative slippage of 0.4 pips and positive slippage on 31 of them. Net cost is about $40 per 100 lots beyond the quoted spread.

Related: instant-execution, slippage-tolerance, slippage, requote

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
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.

Educational only, not advice. Spotted an error? Post in Site Feedback.