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What is Slippage and How it Affects Your Trade

May 4, 2017

 (Photo via Pixabay)


What is Slippage?


No, we're not referring to the slippage you see in the photo above. We're referring to slippage in the markets! Slippage doesn't just occur in the equity markets, but since there's no futures contract for cannabis yet, we'll stick to stocks. 


Slippage is basically what happens when you think you're going to get in or out of the market at a certain price, and you end up getting a different price. There can be slippage in the favorable direction, or favorable in the less-than-favorable direction. The latter eats into your profits. 


Why Does Slippage Matter?


Many marijuana stocks are considered to be illiquid by Wall Street standards. With so many small companies and limited market participation on the street, a small market buy order can very well send a stock soaring. Conversely, a small market sell order could send a stock plummeting. In times of high volatility like this, slippage can occur.


The price you see may not be the price you get. For instance, there may not have been enough shares for sale at the ask price you saw online to fill your entire buy order. A portion of the buy order could get filled at a higher price than you intended, and there you have slippage. 


How Do I Avoid Slippage?


Sometimes, slippage in a trade is unavoidable even for the most skilled traders. In the marijuana stock world however, there's a few tips and tricks you can use to avoid it. 

  1. Be sure to use limit orders when possible!

  2. Trade on the foreign stock's native exchange if you can!

  3. Look for marijuana stocks with active market makers such as those trading on the NYSE and NASDAQ.


Happy Trading!





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