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Slippage measurement

The discipline of quantifying the difference between an intended price and the achieved price, using a benchmark fixed in advance rather than chosen afterwards.

The number is only honest if the benchmark is chosen before the trade. Picking the flattering comparison after the fact is how firms convince themselves execution is fine while paying away their edge.

Track it per strategy and per order type, in basis points, with a distribution rather than an average. slippage is fat-tailed: the mean is dominated by a handful of bad fills during fast moves.

Example: 240 entries over a month, average slippage of 1.8 ticks against a $12.50 tick — $5,400 on 240 single-contract trades. The median is 0.5 ticks; nine trades around news account for 62% of the total. The fix is not "trade better", it is "do not use market orders in the first minute after data".

Related: slippage, execution-quality, implementation-shortfall, average-fill-price

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.

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