A Stop Loss triggers your position for closure when the applicable market price reaches the level you set, but it does not guarantee the exact execution price.
Once triggered, the position is closed at the next available market price. If the market is moving quickly, gaps through your Stop Loss level, or available liquidity is limited, the execution price may differ from your Stop Loss price. This difference is known as slippage.
How Does a Stop Loss Execute?
A Stop Loss does not reserve a specific execution price. Once the applicable market price reaches your Stop Loss level, the order is triggered and processed as a market order at the next available price.
A price gap
If the market gaps past your level — at the weekly open, after a news release, or when a market reopens — there is no price in between to fill at. The position closes at the first available price on the other side of the gap, which can be well beyond your level.
A stop loss cannot protect against a gap, because the price at your level was never traded. This is the largest single cause of a fill far from the level set.
High Market Volatility
During periods of high volatility, prices can move significantly between consecutive price updates. Your Stop Loss may be triggered when the applicable price reaches your level, but the position may be executed at a different available price.
Low liquidity
When liquidity is limited, there may not be sufficient volume available at your Stop Loss price. Your position may therefore be executed at the next available price.
A large position
A large order may require execution across multiple available price levels. This can result in an average execution price that differs from your Stop Loss level.
Can Slippage Be Positive?
Yes. Depending on market conditions, an order may sometimes be executed at a better price than the Stop Loss level.
What This Means in Practice
A Stop Loss is designed to limit potential losses, but it does not guarantee that your position will close at the exact Stop Loss price.
Positions held through market closures or periods of high volatility may be exposed to greater gap risk and slippage.
To reduce the potential impact of slippage, consider using an appropriate position size and carefully assess the risks of holding positions through market closures or major market events.
Customer Actions
- Review your open positions before the weekly market closes and scheduled high-impact news.
- Consider reducing position size when holding positions through periods of potentially high volatility.
