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The difference between the expected price of a trade and the actual executed price.
The difference between the expected price of a trade and the actual executed price.
Slippage occurs due to market movement during order transmission latency or insufficient liquidity at the top of the order book.
Impacts high-turnover quantitative trading strategies.
Modeled in realistic backtesting frameworks as part of transaction costs.
Market microstructure is the study of how exchange mechanics shape price formation, liquidity, and execution costs. The dominant academic reference is Harris (2003) and O'Hara (1995). The dominant practitioner applications are the design of execution algorithms and the design of market-making strategies, both of which depend on a quantitative model of the order book and its dynamics.
Algorithmic trading is the use of computer programs to automate order generation, submission, and execution in financial markets. It spans systematic strategies (where the algorithm decides what to trade), execution algorithms (where the algorithm decides how to trade an existing decision), and high-frequency market-making. The defining feature is that a machine not a human produces and manages the orders.