Order Types and Slippage Explained

An order is an instruction, not a guarantee

Every order type is a trade-off between two things that cannot both be promised at once: the price received and the certainty of being filled at all. Which of the two an order type protects — and which it leaves exposed — explains most of the surprises traders meet on a fill.

Market orders: execution first

A market order asks for the next available price, whatever that turns out to be. Under normal liquidity the fill lands at or very near the quote on screen. When the order book is thin or moving quickly, it can land materially away from it. A market order therefore secures execution in almost all conditions and secures nothing about the price.

Limit orders: price first

A limit order names the worst acceptable price — buy at or below a level, sell at or above it. If the market never trades there, nothing happens: the order rests until it is filled, cancelled, or expires under its time-in-force instruction. A limit order removes price risk on entry and replaces it with the risk of not participating at all.

Stop orders and what a stop-loss really does

A stop order sits dormant until price touches its trigger level, at which point it becomes a market order. That is the mechanism behind an ordinary stop-loss, and it is why a stop-loss fixes the intended exit level rather than the realised one: once triggered, it fills at whatever the market offers next. Across a fast gap the difference can be substantial. A stop-limit order avoids that by converting into a limit instead — at the cost of possibly not filling at all.

Where slippage comes from

Slippage is the difference between the price expected and the price received, and it has two ordinary causes. The first is latency: the milliseconds between an order leaving the platform and reaching the venue, during which the market can move. The second is depth: when the size requested exceeds the volume available at the top of the book, the remainder fills at successively worse prices. Slippage is not directional by nature and can land in a trader's favour as easily as against — but it clusters around data releases, session opens, and weekend gaps.

What an order ticket can and cannot promise

Execution modes handle a moved price differently: under instant execution a quote that has travelled beyond a tolerance produces a requote rather than a fill, while under market execution the trade goes through at the new price. Some venues also offer guaranteed stops that fix the exit level for a fee. What no order type removes is the underlying fact that a price on screen is a quote for a moment, not a commitment for the moment after.