You know when you go shopping and you find this super hot dress then look at the price tag? Well, that’s market price. You pay what you see!
This is probably the easiest concept of investing.
You find a stock or fund or futures entry point that is desirable to you and press buy/sell and that’s market price.
However, slippage happens.
With the market being so dynamic and constantly moving up or down when you press the button at market price, chances are you will get a slightly different rate.
A good way to look at it is like this – the dress you want is $500. That’s the market price. You get to the counter and end up paying $540 which is including tax.
There are no taxes in equities or shares, but slippage works similarly to this. You end up paying a little more than the market price due the volatility of the prices.
How to Avoid Slippage and Enter at the Price You Want?
As long as you are doing market orders, there is no way to get around this.
The only way to avoid it is to put in limit orders. Check out how to work with limit orders here. But for long term or even short term (not day trading) this doesn’t cause too much alarm and the difference in price is minimal.
NOTE: Slippage is not commissions. That is totally different and your commission rates are solely based on your brokerage/management firm.
Marina 'The Trader Chick' Villatoro