Slippage and spread: the cost you never see

Commission is visible. Spread and slippage are not — which is exactly why they eat more than people expect.

The spread

The gap between the bid and the ask. If a stock is 50.00 bid / 50.04 ask, you buy at 50.04 and sell at 50.00. That is 4 cents of round-trip cost before the price moves a single tick.

Slippage

The difference between the price you expected and the price you got. It comes from speed of movement, thin liquidity, and market orders placed into fast conditions. On a quiet large cap it is pennies. On a small cap, or during news, it can be whole percent.

Add it up

• Round trip on a liquid name: ~0.05–0.10%
• 500 round trips a year on $20,000 positions: $5,000–$10,000 in slippage alone
• That is on top of commission, and it does not appear anywhere on your P&L statement

Model your own numbers in the overtrading cost calculator — it lets you set slippage per trade and separates it from commission.

What reduces it

• Trade liquid names.
• Use limit orders where you can tolerate not being filled.
• Fewer, better trades — the only lever that removes cost without needing to be right more often.