Slippage encompasses all the ways a realized execution price differs from the expected price at the time of order submission:
- Bid-ask spread — paying the spread on market orders (crossing from mid to ask on a buy, mid to bid on a sell)
- Market impact — the price movement caused by the trade itself, proportional to order size and inversely proportional to liquidity
- Timing slippage — price movement between the decision time and execution time, due to transmission delays, queue position, or algorithmic execution time
- Opportunity cost — the cost of unexecuted portions of a limit order that the market moved away from before filling
Slippage is the dominant cost for liquid-market high-frequency strategies and the primary reason backtested performance overstates live results when slippage is modeled naively (e.g., assuming mid-price fills or zero market impact at any size).
Accurate slippage modeling in backtests requires historical order-book data and realistic volume participation rate assumptions. Strategies that trade frequently or in size will typically show significant performance degradation from backtest to live if slippage is not modeled carefully.