Slippage

The gap between an expected price and an obtained one. It has two ordinary causes and neither involves anybody doing anything wrong. A market order is an instruction to deal at the best price available when it arrives, and price can change in the interval between the instruction being sent and being executed. And where the size requested is larger than the volume resting at the best price, the remainder is filled at the next prices available, so the average price obtained is worse than the one displayed.

It concentrates in identifiable places: the instant a scheduled economic release prints, the opening of a market after a break, thin sessions between the main trading centres, and any move fast enough that quotes gap rather than step. It is distinct from the two things it is most often confused with. The spread is the cost of dealing at any moment, present even in a still market, while slippage is a difference between two moments. A requote is a price being offered again rather than filled, which is a different outcome from being filled at a different price.

Three points are exact and worth keeping. Slippage runs both ways, and a fill better than expected is called price improvement, so how a firm treats the two directions, and whether it passes on both, is the thing a disclosure on execution actually discloses. A limit order does not slip beyond its price, because it fills at the stated price or better or not at all, which trades price risk for execution risk. And a tolerance setting caps the difference by rejecting fills outside a stated band, which does not remove the risk so much as convert it into the risk of not being filled. In the industry, a guaranteed stop is a stop a provider commits to execute at its level for a fee, a general market term used here for definition and not a description of any YAL product.