What does slippage refer to in trading?

• A. Execution at the expected price
• B. Execution at a different price than expected
• C. A form of insider trading
• D. Limiting trade volume

Answer: (B)

Slippage refers to the phenomenon in trading where an order is executed at a different price than what was expected or intended by the trader. This can occur due to various factors, such as market volatility, rapid price movements, or delays in order processing. For instance, if a trader places an order to buy a stock at $50, but the order is executed at $50.10 due to fluctuations in the stock's price, the difference of $0.10 is considered slippage.

This concept is particularly important for day traders, who often operate with very tight margins and are looking to make quick trades. Understanding slippage helps traders manage their expectations when entering or exiting positions, as it can impact the overall profitability of their trades.