What Slippage Is
Slippage is the difference between the price at which you intended to place an order and the price at which it is actually executed. It occurs because the market moves in the milliseconds between order submission and fill — or because there is insufficient liquidity at the desired price.
For discretionary traders, slippage is an annoyance. For EAs and scalping strategies it is often the difference between a profitable and an unprofitable system: if your target per trade is 3–5 pips, even 1 pip of average negative slippage can eat you alive.
Why Slippage Occurs
- Market volatility: Around news events (NFP, rate decisions) prices move sharply and quickly.
- Thin liquidity: During off-peak hours or in exotic pairs there is simply not enough counterparty interest.
- Execution speed & latency: The longer the path between your system and the liquidity pool, the more the price can move in transit.
- Order type: Market orders are filled at the next available price; limit orders protect against negative slippage but risk non-execution.
Positive, Negative and Gap Slippage
Not all slippage is the same — the distinction matters for EA traders:
- Negative slippage: Filled worse than requested — the norm in fast markets.
- Positive slippage: Filled better than requested. Genuine ECN/STP brokers pass it on; with "last-look" market makers it conspicuously tends to vanish in their favour.
- Requotes: Instead of filling, the broker offers a new price. Common with market-maker models and in volatility — critical for EAs, because the order is delayed or not executed at all.
- Gap slippage: Over the weekend or on news, price jumps straight past your stop/limit level. Your stop then fills at the next available, often far worse price — guaranteed stops (for a surcharge) are the only real protection.
Realistic Magnitudes
Rough guide values for majors (EUR/USD, GBP/USD) at a good ECN broker, per order side:
- Quiet session, normal liquidity: 0.0–0.3 pips
- Normal trading: 0.3–0.8 pips
- Around major news (NFP, FOMC): 2–10+ pips, plus requote risk
- Sunday open / thin liquidity: several pips, gap risk
Exotics, indices and crypto run considerably higher. What matters is not the single value but the average across many trades — exactly what you measure in your journal.
Impact on Automated Trading
Backtests typically assume perfect execution. In live trading, slippage shifts both entry and exit — for high-frequency or tightly-targeted EAs this can halve or entirely eliminate the edge measured in the backtest. A realistic slippage assumption therefore belongs in every serious strategy evaluation.
Worked example: how slippage eats an edge
A scalping EA targets 4 pips of profit at a 60% win rate with a 4-pip stop. Gross expectancy per trade: 0.6 × 4 − 0.4 × 4 = +0.8 pips.
With realistic execution: 0.8 pips of average negative slippage (entry and exit combined). Expectancy: 0.8 − 0.8 = ±0 pips — after commission the system is in the red. A strategy that was profitable in the backtest becomes a loser live, purely from execution costs the backtest never modelled. That is exactly why a conservative slippage assumption is mandatory — and the tighter your pip target, the more critical it gets.
How to Reduce Slippage
- Choose an ECN/raw broker with deep liquidity — see our broker reviews.
- Run your VPS close to the broker's server (ideally the same data centre, e.g. Equinix NY4) — see VPS for EAs.
- Control your trading hours: avoid trading market-moving news releases with market orders.
- Use limit orders wherever your strategy allows.
- Measure and monitor slippage — you can only optimise what you track.
Conclusion
Slippage is not a minor detail; it is a hard cost component of every automated strategy. Broker selection, VPS location, and order logic are the three levers that bring it under control — and they are exactly what we assess when evaluating brokers from an algo perspective.