Slippage

Slippage is the difference between the price at which you expected a trade to execute and the price at which it actually filled. It arises because markets move between signal and execution, and because a market order consumes whatever liquidity is available — the best bid or offer may not have enough quantity at the price you saw. Slippage is usually adverse, and it applies on both entry and exit.

Its main drivers on NSE: bid-ask spread (wide in illiquid strikes and small-cap stocks), volatility (prices jump between ticks around 9:15 am, news and expiry), and order size relative to available depth.

Example

Your system signals a buy on a BANKNIFTY option when the last traded price is ₹210. By the time the market order reaches the exchange, the best offer is ₹211.50. Fill price: ₹211.50, slippage = ₹1.50 per unit. On one lot of 35, that is ₹52.50; add a similar exit and a 20-trade month quietly costs about ₹2,100 — before brokerage and taxes. Hypothetical, but representative of why fast-moving option entries fill worse than the chart suggests.

Why it matters

Slippage is the gap between backtest and reality. A strategy that earns ₹40 per trade on paper and pays ₹45 in real slippage is a losing strategy that backtests beautifully — the failure mode of many high-frequency intraday systems. Systematic traders model slippage explicitly as a per-trade cost assumption, prefer liquid instruments, and treat limit orders versus market orders as a design decision.

In INDfolio AI, slippage is part of the backtest cost model alongside brokerage and charges — see Backtesting.