Transactions Cost & Slippage

As in any industry that involves agents with specialized skills and licenses, there are transaction costs in trading.

These transaction costs include fees and commissions that must be paid to banks and brokers for their involvement in the trading transactions. Investors should pay attention to transaction costs because not only do they diminish an investor’s net returns, they also reduce the amount of funds available for future investments. Another potential source of reduced returns for investors is slippage. Slippage is the difference in the price an investor expects a trade to be executed at and the price it is actually executed that.

Slippage most often occurs when the market is particularly volatile with prices changing quickly and when market orders are used.