Slippage

How it's measured

For a buy, slippage = fill price − expected price. For a sell, slippage = expected price − fill price. A positive number is a cost. Divide by the expected price for a percentage, or multiply by the number of shares for the dollar cost.

The expected price needs a definition: the signal price, the mid-quote when the order was sent, or the stop level. Pick one and measure consistently, or the numbers won't be comparable.

Why it matters

Slippage comes from crossing the spread, from price moving between decision and fill, from an order eating through several levels of the order book, and from gaps. It tends to be largest when momentum traders are most active: at breakouts, at the open and on news. A strategy with a small edge per trade can lose all of it to slippage.

Example

For example, a hypothetical breakout signal fires at $12.00. Your order fills at $12.06, and your stop at $11.50 later fills at $11.42. Planned risk was $0.50 a share; actual risk was $0.64, 28% more than planned, from slippage alone.

Common mistakes

• Testing a strategy with zero slippage.
• Sending market orders into thin books.
• Measuring slippage on entries only; exits under pressure often slip more.

How PatternX uses it

Momentum Lab sends entries and exits as marketable limit orders with buffers. Entries are priced 0.5% beyond the ask (or the bid, for shorts) and time out after 10 seconds. Exits start with a 1% buffer that widens by 0.5% per attempt for up to six attempts; after that the engine keeps retrying at the widest buffer and raises a critical alert. A market order is used only in the regular session when data is stale. The buffer limits how far each order can fill from the quote, but in a fast market it can also mean an order doesn't fill on the first try. Momentum Lab analytics report slippage on closed positions. PatternX's pattern backtests charge 0.03% slippage on entries and exits; Momentum Lab backtests assume 0.05%.