Glossary
Slippage
Slippage is the difference between the price you expected to get and the price you actually got when your order filled. It is worst in thin markets, where a large order eats through several price levels. The bigger your order relative to available liquidity, the more slippage tends to cost you.
You decide to buy at 50 cents, you send the order, and it fills at an average of 52. Those two cents you did not plan for are slippage. It is the quiet gap between the price that made you act and the price the market actually gave you, and it shows up most when you want to trade in a hurry or in size.
The mechanism is simple once you picture the book. A market order takes the best available price first, then the next, then the next, climbing the ladder until it is filled. If plenty of contracts sit right at 50, you barely move. If only a few do, your order keeps reaching for worse prices to complete, and your average drifts away from where you started. That climb is slippage in action, and it grows with the size of your order relative to the liquidity sitting nearby.
How traders keep it small
The usual defenses are to size orders to what the order book can absorb, to break a large order into smaller pieces, and to post a limit price rather than taking whatever the market offers. None of that removes slippage entirely, but it keeps a good idea from being spoiled by a bad fill. On a thin market, slippage can matter more to your result than being right about the outcome.