Glossary
Slippage
The difference between the expected fill price and the realized fill price. The largest single gap between paper backtests and live P&L for most retail strategies.
Sentivue Capital··4 min read
Slippage is the difference between the price a backtest assumed and the price actually filled in live trading. It is the most underestimated cost in retail systematic trading and frequently the difference between profit and loss in higher-frequency strategies.
Sources
- Spread. Bid-ask gap; you cross half (or all) of it on each trade.
- Market impact. Your order moves the price against you, especially in illiquid instruments.
- Latency. Quote staleness between signal generation and order arrival.
- Liquidity gaps. Holes around news prints, opens, closes.
- Adverse selection. Counterparties picking off stale quotes.
Modeling
Three escalating realism levels:
- Constant slippage — a fixed spread or basis-point cost. Acceptable for low-frequency, large-cap strategies.
- Volume-relative slippage —
cost = k × (order_size / ADV)^α. Reasonable for daily-to-weekly horizons. - Microstructure-aware — model the order book and queue position. Required for higher-frequency or market-making strategies.
When in doubt, use 2× the realistic estimate. If a strategy doesn't survive that, it doesn't deserve live capital.
Common traps
- Mid-price fills. Backtesting on mid prices systematically halves slippage and is the most common source of paper-to-live divergence.
- Stop-loss assumptions. Stops fill at the trigger price in backtests; in live they slip in the direction of the move that triggered them, often badly.
- News-event fills. Liquidity vanishes during prints; backtests using mid prices are wildly optimistic.