What is Slippage Tolerance?

Understanding Slippage Tolerance

Slippage tolerance sets the maximum deviation from your requested price that you are willing to accept. Brokers apply this parameter when executing market and stop orders, ensuring fills do not occur far outside expectations.

Configuring Tolerance

High-frequency strategies may allow only 0.1-0.3 pip slippage, while swing traders can tolerate more. Tailor the value to instrument volatility and your risk appetite. Too tight and orders reject; too loose and execution costs balloon.

Monitoring Results

Review fill reports to ensure actual slippage stays within tolerance. Chronic slippage beyond settings suggests broker issues or insufficient liquidity.

Instrument‑Specific Settings

Volatile pairs (GBP/JPY) or illiquid crosses require wider tolerances than EUR/USD. Maintain separate profiles by symbol and session, and tighten automatically when spreads compress.

Backtesting and Risk

Simulate fills with variable slippage in your backtests to estimate worst‑case costs. For stops, consider a stop‑limit with a sensible protection band to avoid extreme fills, but beware of non‑fills during gaps.

Review tolerance alongside execution metrics monthly. If slippage creeps beyond your settings, either conditions changed or your broker’s routing did—both require action.

Platform Settings and Edge Cases

• Use separate tolerances for entries vs. exits; protect exits more tightly.
• Beware weekend gaps—tolerance doesn’t limit fills when markets reopen far away.
• For algos, fail‑safe: disable strategy when spreads or slippage breach thresholds.

Link tolerance to position sizing: tighter tolerances reduce fills but also curb tail slippage costs. If rejection rates rise, scale down size rather than loosening controls indiscriminately.