Slippage

Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. Slippage is more during the periods of higher volatility.

A sample order book

Suppose you place a market order to buy 23 shares, you may expect it to fill at 82.90. But due to high volatility, the buy order for 23 shares is executed at 82.92. This 0.02 difference between the expected price of 82.90 and the actual price of 82.92 is called slippage.

Can slippage be avoided?

Slippage comes under the category of execution risk and cannot be entirely avoided but can be reduced. One way to reduce slippage is by using limit orders instead of market orders. However, you run the risk that the order might not be filled. Another way is to try to avoid trading during the periods of high volatility.