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Key Takeaways
- Slippage compares the average executed price with a named price benchmark.
- Weight each fill by quantity to calculate the order’s average execution.
- The example’s 2,000-share purchase costs $100,102 at a $50.051 average.
- Against the $50 offer benchmark, that is $0.051 per share and $102 total.
- For options, apply contract quantity and multiplier; use the complete package price for spreads.
What is slippage?
Slippage is the difference between an order’s average execution price and a chosen price benchmark, such as the decision price, the arrival midpoint or the quoted offer. For a buy, subtract the benchmark from the average fill. For a sell, subtract the average fill from the benchmark. Positive results under this convention represent an adverse difference; negative results represent a favorable one.
Formula
Buy slippage = average fill price − benchmark price; sell slippage = benchmark price − average fill price- Positive values under this convention represent worse execution.
- Slippage cost = slippage per unit × executed quantity × contract multiplier.
- Name the benchmark with the number: $102 against the $50 offer is a different figure from slippage against the midpoint.
Slippage example: a 2,000-share market buy
A trader sends a market order to buy 2,000 XYZ shares when the best offer is $50.00, but only 500 shares are available there.
- 500 shares fill at $50.00
- 800 shares fill at $50.04
- 700 shares fill at $50.10
- Average fill price: $50.051
- Slippage versus $50.00 offer: $0.051 per share, or $102 total
The three fills cost $25,000, $40,032 and $35,070, totaling $100,102. Dividing by 2,000 shares gives $50.051. The difference from the $50 benchmark is $102 across the completed order.
The book shows why: only 500 shares occupy the first offer level, and the completed order reaches two higher levels.
How to choose a slippage benchmark
Pick the benchmark that matches the question. The decision price measures the cost of hesitating, the arrival midpoint measures the full cost of crossing the spread, and the quoted offer measures how far the order walked the book.
Use the same reference event and quantity weighting when comparing executions. Commissions and explicit fees are separate cash entries.
Slippage on options and multi-leg spreads
A five-cent premium difference on 50 standard 100-share contracts equals $250. On an adjusted contract, price slippage with the premium multiplier the contract specifies, even when the deliverable has changed to a different share count.
For a spread, use the full package’s net debit or credit. That captures the economics of every leg together.
How to control slippage
Use market depth to inspect displayed levels and order size. Set the limit price at the worst fill you accept. Then enter the actual premium in the options profit calculator to see how the completed fill changes breakeven and payoff.
Limitations of slippage
- Name the benchmark before you compare fills. A buy at the offer shows zero slippage against that offer and a positive difference against the midpoint.
- Track the unfilled shares too. Slippage measures executed quantity only, so shares a limit order leaves unfilled do not appear in the calculation, even when missing them costs more than the slippage would have.
- Price the order against a moving book. When displayed depth pulls back while the order executes, the fills walk further up the offers than the pre-trade book showed.
- Commissions and explicit fees sit outside the calculation and need their own entries.
Bottom line
Slippage measures how far an order’s average fill lands from a named benchmark, per share and in dollars. State the benchmark, weight fills by quantity, apply the contract multiplier for options, and use displayed depth and limit instructions to keep the difference within plan.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- FINRA: Order Types
- SEC: Rule 605 Regulation NMS FAQs
- SEC: Rule 605 Execution-Quality Disclosure Amendments
How entries are sourced, calculated and updated: editorial methodology.