Slippage: why you get a different price

Slippage is the difference between the price you expected when you placed an order and the average price you actually received when it filled. It is not an error or a hidden fee — it is a mechanical consequence of how orders match against an order book. Understanding it explains why a “market price” you saw a moment ago is not a promise of the price you will get.

Why the price you see is not the price you get

When you look at a quote, you are usually seeing the best available price — the top of the book — for a small amount of the asset. But an order fills against real resting orders, and there is only a finite quantity sitting at each price level. If your order is larger than the size available at the best price, the rest of it fills at the next-best prices, which are slightly worse. The result is an average fill price that has “slipped” away from the top of the book.

A worked example makes this concrete. Suppose the sell side of the book looks like this. These numbers are illustrative, not market data:

You send a market order to buy 10 units. It fills 4 at 100.5, then 6 at 100.7. Your average price is (4×100.5 + 6×100.7) ÷ 10 = 100.62. You expected 100.5, but you paid an average of 100.62. That 0.12 difference is slippage — the cost of walking up through the book to complete your size.

The two ingredients: depth and movement

Slippage has two main causes, and they often combine.

• Insufficient depth: if there is little size resting near the best price, even a modest order must reach into worse levels. This is why slippage is tightly linked to market depth: a deep book absorbs orders with little slippage, a thin one does not.
• Price movement during execution: in fast markets, the book can change between the instant you decide and the instant your order arrives and matches. Orders you were aiming at may be cancelled or already taken, so you fill against whatever is there now.

The first cause is about the size of your order relative to the book; the second is about time and volatility.

Slippage also has a direction, and it is not always against you. If the market moves in your favour between placing and filling, you can receive a better price than expected — positive slippage. If it moves against you, you get a worse price — negative slippage. Because it can go either way, slippage is best thought of as uncertainty around your fill price, not simply a cost. That said, for large orders in a thin book, the structural component (walking up or down the levels) is a genuine cost that only points one way.

Slippage versus the spread

It helps to separate two related ideas. The bid-ask spread is the gap at the very top of the book, paid by even the smallest order. Slippage is the additional price decay a larger order suffers as it consumes deeper levels. A tiny order essentially only pays the spread; a large order pays the spread plus slippage. Both grow when liquidity is thin, which is why they are often discussed together.

How order type interacts with slippage

The order type you choose determines your exposure to slippage, a link explored in market orders vs limit orders. A market order accepts whatever the book gives, so it takes on full slippage risk in exchange for guaranteed execution. A limit order caps the worst price you will accept: it cannot slip past your limit, because the order simply stops filling there. The trade-off is that a limit order may be left partially filled or unfilled if the market runs away from it. Some venues also let you attach a maximum slippage tolerance to an order, which cancels the remainder if the price would move beyond a set threshold.

Expected slippage, realised slippage, and price impact

It is worth separating two things that both get called slippage. The first is expected slippage: before you trade, you can look at the visible book and estimate how far your order would walk given the size resting at each level. Using the earlier table, a 10-unit buy has an expected average of 100.62 if the book stays exactly as shown. The second is realised slippage: what you actually got, which can differ because the book changed between your decision and your execution — orders were cancelled, new ones arrived, or someone else traded first. Expected slippage is a static estimate from a snapshot; realised slippage is the outcome after the market moved. The gap between them grows with speed and volatility.

A closely related idea is price impact: the way a large order not only fills at worse prices but also leaves the market at a new level once it has consumed liquidity. When a big buy clears out several ask levels, the best ask afterwards is higher than before, so the order has both paid slippage and moved the visible price. For small orders this effect is negligible; for orders that are large relative to market depth, it is the dominant cost. This is why the same percentage order size feels cheap in a deep, busy market and expensive in a thin one — the impact scales with how much of the available liquidity you consume.

Where slippage shows up most

Slippage tends to be largest in thin markets, in less-traded assets, during volatile moments such as major news, and for orders that are large relative to the resting liquidity. It is smallest in deep, busy markets for modest order sizes. In automated market makers — the pool-based venues used in decentralised trading — a related effect appears: because the price is set by a formula along a curve, larger trades move further along that curve, producing price impact that behaves much like slippage from a thin book.

The pool-based venues just mentioned deserve a closer look, because the mechanism is different from an order book yet produces a similar outcome. A common design holds two assets in a pool and keeps the product of their two quantities constant. When you buy one asset, you add the other to the pool and remove some of the first; because the product must stay constant, each additional unit you take out requires proportionally more of the asset you put in. The effective price therefore worsens continuously as your trade grows — there are no discrete levels to walk, but the curve bends against you in the same direction. The larger your trade relative to the pool’s reserves, the further along the curve you travel and the more price impact you absorb. As with an order-book market, a bigger pool behaves like a deeper book and slips less, so the same trade can be cheap in a large pool and costly in a small one.

What this means

Slippage is the honest arithmetic of filling an order against finite liquidity. The quoted price is a starting point for a small trade, not a guarantee for a large one. The two things that drive it are how much depth sits near the top of the book and how fast the market is moving while you execute. A common mistake is to blame the venue for a fill that differs from the last-seen price, when the order simply did what a market order does — take the best prices available, in order, until it was full. This article describes a mechanism and is not trading advice.