Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed. It commonly occurs during periods of high market volatility or when there is low liquidity in a particular security. In simpler terms, slippage happens when an order is executed at a different price than anticipated due to rapid market movements.

In financial markets, slippage can be both positive and negative. Positive slippage occurs when a trade is executed at a better price than expected, whereas negative slippage results in a less favorable price. Traders, especially in fast-moving markets like equities, derivatives, and forex, may experience slippage when placing market orders or large-volume trades. This makes understanding slippage an essential part of risk management and order execution strategies.

Several factors influence slippage, including market volatility, liquidity, order type, and trading volume. For example, using market orders during volatile conditions may lead to greater price differences, while limit orders can help control execution prices but carry the risk of non-execution. Institutional and retail traders alike should monitor bid-ask spreads and avoid trading during major economic announcements to minimize slippage.

Effective trading strategies to manage slippage include using limit orders, trading during high liquidity periods, and employing algorithmic or automated trading tools that optimize order timing. Additionally, understanding how different market conditions affect order execution helps investors set realistic expectations about trade outcomes.

In summary, slippage is a natural market phenomenon that reflects real-time supply and demand dynamics. While it cannot be entirely eliminated, being aware of its causes and implications allows traders to make informed decisions and enhance their trading performance within the regulatory framework set by authorities like SEBI.