Understanding Slippage and Order Execution

You set up your automation perfectly. The signal fires. The order goes out. And then... your fill price is different from what you expected.

Welcome to slippage.

It's one of those things that surprises new traders and frustrates experienced ones. Your backtest showed clean entries at exact prices. Live trading shows a messier reality. Let's talk about why this happens and what you can actually do about it.

What Slippage Actually Is

Slippage is the difference between the price you expected and the price you got. If you tried to buy at 4500.00 and got filled at 4500.25, you experienced 0.25 points of slippage.

It can go either way. Negative slippage hurts you—you paid more to buy or received less when selling. Positive slippage helps you—you got a better price than expected. Over time, most traders experience more negative slippage than positive, but both happen.

Slippage isn't a bug or a problem with your broker (usually). It's just how markets work. Prices are constantly moving, and by the time your order hits the market, the price may have shifted.

Why Slippage Happens

Market Orders Execute at Market Prices

When you send a market order, you're saying "fill me now, at whatever price is available." You're prioritizing speed over price. The market takes you at your word.

If the best available price is 4500.25 when your order arrives, that's what you get. If it's 4500.50, you get that. You're accepting whatever the market offers at that moment.

The Order Book Is Constantly Changing

At any moment, there are buy orders (bids) and sell orders (offers) sitting in the order book. But these change constantly. By the time your order travels from TradingView to Algo Bread to your broker to the exchange, the order book may look completely different.

Fast markets can move 10 points in the time it takes your order to arrive. That's not slippage from your perspective—that's just the price being different when your order gets there.

Liquidity Varies Throughout the Day

Liquidity means there are buyers and sellers ready to trade at competitive prices. High liquidity means tight spreads and minimal slippage. Low liquidity means wider spreads and more slippage.

Liquidity patterns:

• Market open: Often volatile with variable liquidity. Big moves, potentially larger slippage.
• Mid-morning: Typically better liquidity, tighter spreads.
• Lunch hour: Liquidity often drops, spreads can widen.
• Afternoon: Generally good liquidity until close approaches.
• After hours: Much lower liquidity, wider spreads, more slippage.

If you're trading during low-liquidity periods, expect more slippage.

Volatility Amplifies Everything

During calm markets, the bid-ask spread might be 0.25 points on ES. During a volatile moment—news release, sudden move, panic—it might widen to 1 point or more.

Your order goes in, but there's no one willing to take the other side at a reasonable price. You get filled at whatever someone is offering, which might be further from your expected price than usual.

Your Size Matters

If you're trading 1 contract, you're usually fine. There's almost always someone willing to trade 1 lot at the best price.

If you're trading 50 contracts, you might eat through multiple price levels. The first 10 get filled at 4500.00, the next 20 at 4500.25, and the last 20 at 4500.50. Your average fill is worse than the price you saw when you clicked.

For most retail traders and prop traders, this isn't a concern. But if you're scaling up, be aware that size impacts execution.

Market Orders vs Limit Orders

This is where you can actually control something.

Market orders guarantee a fill but not a price. You'll get executed, but you don't know exactly where.

Limit orders guarantee a price but not a fill. You'll only get executed at your price or better, but you might not get filled at all.

For automated trading, this creates a tradeoff:

The Case for Market Orders

• You always get filled (assuming the market is open and liquid)
• No missed trades
• Simple—no worry about order management
• Slippage is usually small in liquid markets

The Case for Limit Orders

• You control your entry price
• No surprise fills at bad prices
• Can potentially get better fills than market orders
• But you might miss trades entirely

For most automated strategies, market orders make sense. The cost of missing a trade is often higher than the cost of some slippage. If your strategy has edge, you want to be in the trade—paying a quarter point extra is usually worth it.

But if slippage is destroying your edge, limits might help. It depends on your specific situation.

What You Can Actually Control

Trade During Liquid Hours

If your strategy allows flexibility on timing, favor the most liquid hours. For ES futures, that's roughly 9:30 AM - 11:30 AM ET and 1:30 PM - 4:00 PM ET. Avoid the lunch lull and overnight session if slippage matters to you.

Avoid Trading Around News

The 5 minutes before and after a major economic release are slippage heaven. Spreads widen, volatility spikes, and fills get ugly. If you don't have a specific news-trading strategy, sitting out these windows reduces slippage.

Right-Size Your Positions

Trading smaller size means less market impact. If you're concerned about slippage, consider whether you're trading too large for the liquidity available.

Use Limit Orders (Carefully)

If you switch to limits, understand you'll miss some trades. For many strategies, a 90% fill rate at better prices beats a 100% fill rate at worse prices. But not always—do the math for your situation.

Accept Reality

Some slippage is unavoidable. A reasonable expectation for liquid futures like ES or NQ is 0.25-0.50 points during normal market hours, and 1-2 points during volatile moments or off-hours.

Build this into your expectations. If your strategy only works with zero slippage, it doesn't work.

Slippage in Your Backtests

Here's something important: your backtests probably don't account for slippage properly.

Most backtesting assumes you get filled at exactly the price shown. In reality, you get filled at market price, which is usually worse. A strategy showing $100 profit per trade in backtest might show $80 profit per trade live once slippage is included.

Some traders add "slippage and commission" to their backtests—maybe $5-10 per round trip. This is a start, but it's just an estimate. The only way to know your actual slippage is to trade live and measure it.

Measuring Your Slippage

After you've been trading for a while, calculate your actual slippage:

• Record expected fills: Log what price you intended to enter at (the price when the signal fired)
• Record actual fills: Log your actual fill price from your broker
• Calculate the difference: Subtract expected from actual
• Average it out: Sum the slippages, divide by number of trades

Now you have a real number. If you're averaging 0.5 points of slippage on ES, you can use that in future calculations and backtests.

If your slippage is much higher than expected, investigate:

• Are you trading during low-liquidity times?
• Are you trading too large for the market?
• Is there a problem with your execution setup?

The Bottom Line

Slippage is a cost of doing business in live trading. It's not a scam, it's not your broker stealing from you, and it's (usually) not a problem with your setup. It's just how markets work.

Accept that your fills will vary. Build realistic assumptions into your planning. Trade during liquid hours when possible. And remember that a working strategy can absorb normal slippage—if your edge can't survive real-world execution costs, you need a better edge.

The traders who succeed are the ones who deal with reality rather than fighting it. Slippage is part of that reality.