What does 'slippage' mean in the context of trading?

In the context of trading, 'slippage' refers to the change between the expected and actual trade execution price. This phenomenon occurs when a trader places an order to buy or sell an asset, but the transaction is executed at a price different from what was anticipated due to market fluctuations, high volatility, or low liquidity. Slippage can happen in both market orders and limit orders, although it is more commonly associated with market orders which need to be executed immediately at the current market price.

Understanding slippage is crucial for traders as it affects the overall cost and profitability of trades. This concept is particularly relevant in fast-moving markets or during significant news releases that can cause rapid price changes. Being aware of potential slippage can help traders manage their risks better and implement strategies that account for unexpected price changes during execution.

The other choices address different aspects of trading but do not capture the essence of slippage. For instance, the time delay in executing trades pertains more to latency issues rather than price changes. The difference between buy and sell orders describes the bid-ask spread, which is a fundamental pricing concept. The strategy of holding onto losing trades relates more to a trader's psychological approach rather than an execution-related term like slippage. Understanding these distinctions enhances a trader