Understand Slippage

tomleslie1 — Tue, 19 Oct 2010 08:00:40 +0000

The professional trader who sells to buyers and buys from sellers is not a social worker. He is running a business, not a charitable operation. Slippage is the price he charges for rapid action. He has paid a high price for his spot at the crossroads of buy and sell orders, buying or leasing an exchange seat or installing expensive equipment.

Some orders are slippage-proof, while others invite slippage. The three most popular types of orders are limit, market, and stop. A limit order specifies the price, that is, “Buy 100 shares of XX at $4.” If the market is quite and your are willing to wait, you will get that price. If xx dips below $4 by the time your order hits the market, you may get it a little cheaper, but don’t count on it. If the market rises above $4, your limit order will not be filled. A limit order lets you control the price at which you buy or sell, but does not guarantee you a fill.

A market order lets you buy or sell immediately, at whatever price you can get at the moment. The execution is guaranteed, but not the price.

A stop order becomes a market order when the market touche that level.

Options strategy