Slippage Management
Slippage is the difference between where you thought you’d get filled and where you actually got filled. It’s death by a thousand cuts – the silent killer that turns winning strategies into break-even ones.
You see a quote at $50.00. You click buy. You get filled at $50.12. That $0.12 is slippage. On 1,000 shares, it’s $120 gone before the trade starts moving your way. Do that ten times a month and you’ve given away $1,200 of edge.
I used to ignore slippage. Then I calculated my annual slippage cost and almost fell out of my chair. Let’s make sure that doesn’t happen to you.
Measuring Your Slippage
You can’t fix what you don’t measure. Start tracking:
Expected price: The quote you saw when you decided to trade
Actual fill: Your weighted average execution
Slippage %: (Actual – Expected) / Expected × 100
My benchmarks:
Under 0.05%: Excellent
0.05% – 0.10%: Acceptable
0.10% – 0.25%: Needs work
Over 0.25%: Major problem
If your slippage exceeds your expected profit per trade, you’re fighting a losing battle no matter how good your analysis is.
Learn With Titan: Slippage Scenarios
The Slippage Budget
I budget for slippage just like I budget for commissions:
Calculate average slippage per trade
Factor it into position sizing
Reduce size if slippage exceeds the plan
If I expect 0.10% slippage on entry and exit, that’s 0.20% round-trip. On a trade targeting 2% profit, slippage eats 10% of my expected gain. I factor this into my expectancy calculations.
Most traders ignore this math. Don’t be most traders.
Your Action Items
Calculate your 90-day slippage average. Look at your last three months of trades. What’s your average slippage percentage? If it’s over 0.10%, you have work to do.
Audit your broker’s execution quality. Compare your fills to the NBBO (National Best Bid and Offer). Are you getting fair fills? If not, it might be time for a new broker.
Try the 15-minute rule for one week. No market orders in the first 15 minutes of the day. Use limits only. Track your slippage improvement. You’ll be amazed.
Create a liquidity checklist. Before trading any stock, check: average daily volume, typical spread, and your position size relative to that liquidity. Don’t trade if the math doesn’t work.
Paper test scaling techniques. Practice scaling into positions with smaller orders. Measure whether multiple smaller orders actually reduce your average fill price compared to one big order.
