Term · Liquidity & Trading
Slippage
In briefSlippage is the gap between the expected and the actually achieved execution price; it arises from the spread, price movement during order execution and market impact. For small caps it can noticeably change the investment thesis, since trading costs can be proportionally far higher than for large caps.
Definition
The difference between the expected execution price and the actually achieved execution price. Slippage comprises the spread, price movement during the order and market impact.
How it is calculated
Formula. Slippage = actual execution price - reference price; relative: slippage / reference price.
Why it matters for small caps
In the small-cap space, slippage can materially change the investment thesis, because transaction costs can be significantly higher in percentage terms than for large caps.
Common misreadings
- It is often seen only as broker costs; in fact it is a hidden drag on returns arising from market structure.
In the process
Frequently asked
What is slippage?
It is the difference between the planned and the realised execution price of an order. It arises from the spread, price movement and the order's market impact.
How do you measure slippage?
You compare the actual execution price with a reference price, in absolute terms or relative to the reference price. This makes the hidden trading drag visible.
Why is slippage more than a broker fee?
It is often taken for pure costs, but it is a hidden drag on returns arising from market structure. Especially for illiquid stocks it can be considerable.
Related terms
Sources
Primary
EUR-Lex – MiFID II, Richtlinie 2014/65/EU
https://eur-lex.europa.eu/eli/dir/2014/65/oj
https://eur-lex.europa.eu/eli/dir/2014/65/oj
Methodology
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.