Definition

Slippage is the difference between the price used as a trading reference and the price actually obtained. An unfavorable buy fills above its reference; an unfavorable sell fills below it. Favorable slippage is possible too. The reference must be stated, such as a decision price, quoted midpoint or modeled execution price.

Measurement

For a buy, adverse slippage as a fraction is (fill price - reference price) / reference price. For a sell it is (reference price - fill price) / reference price. Multiplying by 10,000 expresses the result in basis points.

A spread is the difference between bid and ask at a time. Price impact is a change associated with trading demand. Delay can also move the market between decision and fill. These effects may overlap in an execution-cost measurement, so avoid charging the same friction twice under different labels.

A measured U.S. cost check

The momentum study uses zero commission and tax in its headline U.S. simulation. Its separate test charges 0.1% on every buy and sell as a stand-in for spread and slippage. Over May 2016 to October 2026, that changes CAGR from 29.9% to 28.4%. The stressed daily Sharpe is 1.34 against QQQ at 0.95 on the same daily, zero-risk-free convention.

This is a sensitivity assumption applied to simulated trades. It is not an observed broker fill or a guarantee that every instrument can be traded at that cost. The published monthly Sharpe with a risk-free deduction is a different statistic and should not be substituted into that comparison.

How to model slippage in research

State whether friction is charged per side or per round trip. Tie the assumption to the intended instruments, order sizes and holding period. Run a higher-cost case with the same signals and weights. If a small increase removes the apparent advantage, the strategy needs stronger execution evidence before its result is useful.

Turnover determines how often trading value encounters friction. A small per-side cost can matter materially when a strategy frequently replaces positions. Costs may also rise in stressed markets precisely when the rule wants to exit. A constant percentage cannot model that behavior fully.

The backtesting guide explains explicit friction settings. The algorithmic trading guide separates portfolio targets from the execution process that would need to fill them.

Common pitfalls

Zero commission does not mean zero spread or impact. A closing price is an observation, not proof that an order could fill there. A limit order can control the price while introducing non-fill risk. A daily-data backtest cannot establish intraday execution quality without additional evidence.

Frequently asked questions

Can slippage be positive?

The wording varies. Some systems use a positive number for adverse cost, while others use a signed fill-price difference. Define the sign and buy/sell convention first.

Is a fixed slippage assumption enough?

It is useful for sensitivity analysis. It does not establish capacity or real execution quality. More demanding strategies need evidence matched to their order size, liquidity and trading horizon.

Read CAGR, win rate, the risk metrics guide and the quant glossary.

For education and research only. This is not investment advice. Historical performance does not guarantee future results.

Last updated: 2026-10. Author: FinLab Quant Research.