Slippage

Category: business

The difference between the expected price of a trade and the price at which the trade is actually executed.

Slippage is the "hidden killer" of arbitrage. In illiquid markets, your large order moves the market price against you as it executes. If you try to capture a 0.5% spread but your order volume is large enough to move the price by 0.4%, your real profit is reduced to almost nothing by the time the trade finishes.

Common Examples

• We cap our arbitrage order sizes at 10% of the exchange’s top-of-book depth to ensure we never suffer from excessive execution slippage.
• High slippage during the Friday evening low-liquidity window forced us to disable our automatic arbitrage engine to prevent catastrophic order fills.