Slippage and spread

The headline price you see on a chart is rarely the price you transact at. Two costs sit between you and the market: the spread (the gap between the best bid and the best ask) and slippage (the difference between the price you expect and the price you actually get).

Spread is largely predictable. On a major forex pair like EUR/USD it might be a tenth of a pip; on a thinly traded altcoin it can be several percent. Spread is the market-maker’s compensation for providing liquidity, and you pay it on every round-trip trade.

Slippage is messier. It appears when the size of your order, the speed of the market, or both, force the broker to fill you at a worse price than the one displayed. In quiet markets slippage is negligible. Around news releases or in fast-moving crypto, it can dwarf the spread.

For an AI strategy, the consequences are blunt. A signal that is profitable on paper at zero cost can become a net loser at realistic execution costs. The smaller the average profit per trade, the more punishing this becomes — high-frequency strategies live or die on basis points.

Three habits help. First, model costs as a fraction of average profit per trade, not as a flat per-trade fee. Second, prefer limit orders over market orders whenever you can tolerate non-execution. Third, when comparing brokers, look at all-in cost (spread + commission + financing) rather than commission alone.