Reviewed by Gotrade Internal Analyst
Every trader sees prices on the screen and assumes that is the price they will get. In reality, execution almost always comes with friction. Two of the most common and misunderstood sources of trading costs are slippage and spread.
Slippage and spread are not obvious fees. They quietly reduce performance over time, especially for active traders. Understanding slippage vs spread helps traders set realistic expectations and manage true trading costs more effectively.
This guide explains what slippage and spread are, how they differ, and why they represent the real cost of execution.
Understand Slippage and Spread
Slippage and spread both affect execution price, but they come from different mechanisms.
What is spread in trading?
The spread is the difference between the bid price and the ask price.
In simple terms, it is the cost of entering and exiting a trade immediately.
If a stock has:
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Bid price: 99.90
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Ask price: 100.00
The spread is 0.10.
When you buy, you pay the ask. When you sell, you receive the bid. The spread is the built-in cost paid to the market for liquidity.
Why spreads exist
Spreads exist because markets need liquidity providers.
Market makers and liquidity providers quote bid and ask prices to facilitate trading. The spread compensates them for:
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Providing liquidity
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Taking short term risk
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Operating during volatile conditions
Spreads tend to widen when uncertainty rises and narrow when liquidity is abundant.
What is slippage in trading?
Slippage occurs when a trade is executed at a different price than expected.
In simple terms, slippage is the gap between the intended price and the actual fill price.
Slippage can happen on both buys and sells and often appears during fast markets or low liquidity conditions.
Why slippage happens
Slippage occurs because markets move.
Common causes include:
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Rapid price changes
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Thin order books
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Large market orders
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News releases or earnings
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Trading outside regular market hours
When prices move faster than orders can be filled, execution happens at the next available price, not the intended one.
Slippage vs Spread: Key Differences
Although related, slippage and spread impact trading costs in different ways.
Spread is visible, slippage is not
The spread is visible before entering a trade. Traders can see the bid and ask prices and estimate the cost.
Slippage is unpredictable. It only becomes visible after execution.
This is why slippage often surprises traders, while spread is usually underestimated.
Spread is constant, slippage is variable
For a given moment, the spread is fixed.
Slippage varies based on:
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Order type
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Market conditions
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Trade size
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Timing
Two traders placing similar trades can experience very different slippage outcomes.
Spread affects every trade, slippage affects some trades
Every immediate buy or sell pays the spread.
Slippage does not happen on every trade, but when it does, it can be much more costly than the spread itself.
Over time, both contribute meaningfully to trading costs.
Slippage increases with urgency
Market orders prioritize speed over price.
The more urgent the execution, the higher the chance of slippage. Limit orders reduce slippage risk but may not get filled.
Spread is the cost of immediacy. Slippage is the cost of urgency.
How slippage and spread affect trading strategies
High frequency and short term strategies are especially sensitive to execution costs.
For scalpers and day traders:
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Small spreads matter
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Repeated slippage compounds quickly
For swing traders and investors:
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Spread matters less
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Slippage matters most during entry, exit, and volatile events
Ignoring execution costs can turn a profitable strategy into a losing one.
Slippage vs spread during volatile markets
During volatility, both costs increase.
- Spreads widen as liquidity providers protect themselves.
- Slippage increases as prices move rapidly and order books thin.
This is why strategies that work well in calm markets often struggle during news driven conditions.
Reducing spread costs
Traders manage spread costs by:
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Trading liquid assets
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Avoiding illiquid hours
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Using limit orders when appropriate
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Monitoring average spreads, not just current ones
Lower spreads reduce friction but do not eliminate slippage.
Reducing slippage risk
Slippage cannot be removed entirely, but it can be managed.
Common practices include:
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Avoiding market orders during news
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Reducing position size in thin markets
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Trading during peak liquidity hours
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Accepting partial fills instead of forcing execution
Slippage control is a core part of trading risk management.
Slippage, spread, and realistic performance
Backtests often assume perfect fills with no slippage and minimal spread. Real trading rarely looks like this.
The gap between backtested results and live performance is often explained by execution costs, not strategy flaws.
Understanding slippage vs spread bridges this gap and leads to more realistic expectations.
Why execution costs matter more than fees
Broker commissions are visible and easy to calculate.
Slippage and spread are hidden and ongoing. Over hundreds or thousands of trades, they often exceed explicit fees.
Professional traders obsess over execution because small inefficiencies compound over time.
Conclusion
Slippage and spread represent the real cost of execution. The spread is the visible cost of liquidity, while slippage is the unpredictable cost of fast or imperfect execution.
By understanding slippage vs spread and accounting for both in trading decisions, traders can set realistic expectations, refine strategies, and better manage true trading costs.
If you want to practice trading with transparent execution on US stocks, you can explore the Gotrade app. Fractional shares make it easier to manage position size and observe how execution costs affect real trades.
FAQ
What is the difference between slippage and spread?
Spread is the bid ask difference. Slippage is the difference between expected and actual execution price.
Which is more expensive, slippage or spread?
It depends. Spread affects every trade. Slippage can be larger but occurs less consistently.
Can slippage be avoided?
No, but it can be reduced through order choice and timing.
Do long term investors need to worry about slippage and spread?
Less than active traders, but it still matters during entry and exit.
Reference:
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Investopedia, Understanding Slippage in Finance, 2026.
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Coinbase, Understanding slippage and spread, 2026.
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., which is registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
