Slippage happens when the price falls below your limit or stop order. For example, if you have set a position to automatically close when the AEX closes at 330 points, but the trade closes at 331. You have a higher loss than expected with the stop loss that you had in place.
How does slippage happen?
There is a difference between the expected price of a trade and the price that it has been executed. Slippage usually happens during times of extreme volatility, when orders are being used and when large orders are expected. Slippage can’t be avoided at times, but how do you deal with slippage?
Guaranteed stop loss
With most brokers it’s possible to set a guaranteed stop loss. In case slippage occurs, the broker will pay the extra cost. This guarantee does cost you some extra money. You pay a higher spread, which causes the cost of a trade to go up. It’s recommended that you use a guaranteed stop loss when you expect a high level of volatility.