Slippage in intraday trading refers to the difference between the expected price of a trade and the price at which the trade is actually executed. This happens when there’s a delay in executing the order, often due to high volatility or low liquidity in the market. While slippage is unavoidable in many cases, it can have a significant impact on a trader’s profitability, especially in fast-paced intraday trading.

Why Does Slippage Occur in Intraday Trading?

Slippage occurs primarily due to two factors: market volatility and lack of liquidity. In volatile markets, prices can change rapidly, and there may not be enough buyers or sellers to fill an order at the expected price. This is especially common in intraday trading where trades are executed within a single day, often in fast-moving markets.

How Does Slippage Impact Intraday Trading?

Slippage can impact intraday trading by affecting the price at which trades are executed, which may lead to higher costs or reduced profits. For instance, if you expect a stock to be bought at ₹100 but the price shifts to ₹102 before the trade is filled, you’ve experienced slippage of ₹2. This can reduce the effectiveness of your trading strategy, especially if you’re relying on precise entry and exit points.

How to Avoid Slippage in Intraday Trading?

To minimize slippage, traders can use limit orders instead of market orders. A limit order allows you to specify the price at which you want to buy or sell a stock, reducing the risk of executing at a less favorable price. Additionally, avoiding trading during periods of high volatility, such as during major news events or market openings, can help reduce slippage.

What Is Positive and Negative Slippage?

Slippage can be positive or negative. Positive slippage occurs when a trade is executed at a better price than expected (e.g., a buy order is filled at a lower price than anticipated). Negative slippage happens when the trade is filled at a worse price (e.g., a buy order is executed at a higher price). Both types of slippage can affect your profit margins, and traders should be prepared to manage both scenarios.

How Does Market Liquidity Affect Slippage?

Market liquidity plays a crucial role in slippage. If there aren’t enough buyers or sellers in the market, it becomes harder to execute orders at the desired price. Low liquidity, especially in stocks with low trading volumes, can increase slippage, while high liquidity usually reduces it, ensuring that orders are filled promptly and at the expected price.