Slippage represents the difference between expected trade execution price and actual fill price, often occurring during volatile market conditions or when trading large positions. Slippage can be positive (better than expected) or negative (worse than expected) and affects overall trading profitability. Market liquidity and order size significantly influence slippage levels.

Slippage management involves understanding market conditions, order types, and timing to optimize execution quality. Limit orders can prevent negative slippage but risk non-execution, while market orders guarantee execution but accept slippage risk. Understanding slippage helps optimize trading costs and execution strategies.

Real-world example: A trader places a market order to buy EUR/USD at 1.1050 but receives execution at 1.1052 due to rapid price movement during a news announcement, experiencing 2 pips of negative slippage that increases trade costs.