What is Slippage Tolerance?
Quick Answer: Slippage tolerance is the maximum deviation from your requested price that you are willing to accept on execution, protecting you from fills far worse than expected.
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.
Dynamic Settings
Widen tolerance around news if you must trade, but shrink it during calm sessions to preserve edge.
Monitoring Results
Review fill reports to ensure actual slippage stays within tolerance. Chronic slippage beyond settings suggests broker issues or insufficient liquidity.
Stop-Loss Protection
Even with tight tolerance, gap moves can skip stops. Complement settings with reasonable position sizing and contingency plans.
Related Terms
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