Slippage occurs when the executed price differs from the expected price. In algorithmic trading, slippage can come from spreads, market impact, latency, order type choice, volatility, and liquidity conditions.
Use liquidity-aware position sizing
Order size should be evaluated relative to average volume, order book depth, spread, and volatility. A strategy that sizes positions without liquidity awareness may create its own performance drag.
Match order type to urgency
Market orders prioritize completion but can increase slippage. Limit orders control price but may miss fills. Execution logic should reflect signal decay, market conditions, and the cost of not trading.
Measure slippage by strategy and venue
Transaction cost analysis should compare expected price, arrival price, fill price, and benchmark prices across strategies, instruments, times, and brokers. Measurement turns slippage from complaint into optimization data.
Strategic takeaway
Reducing slippage requires better sizing, execution logic, and measurement. The goal is not zero slippage, but predictable and controlled trading costs.
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