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Trading 101: What is "Trade Slippage"? (beginners beware!) - YouTube
Channel: ClayTrader
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beginner traders please be aware
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trading slippage is one of those little
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nasty things
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that when you don't know what you don't
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know there's no way you actually really
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know about this
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i suppose you could figure it out maybe
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in a bizarre way
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hopefully now you can figure it out just
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by this video
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but it's not really something that when
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you're brand brand new
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you're gonna necessarily think about
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like i said i'm not gonna say it's
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impossible to know about it but
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let me put it this way you're not alone
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if maybe slippage has already bit you
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or you totally got caught off guard by
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it or maybe you're just wait
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i keep heard people saying slippage and
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oh the slippage got me
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i got to be careful of trade slippage
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and any sort of variation
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maybe you've heard that but i want to
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address what that is
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and how it's actually working but i mean
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the how is just kind of an fyi
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but what it is at the core is your plan
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doesn't go according to plan and there's
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not much you can do
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about it meaning you plan on i wanna
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sell here or i wanna exit
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at that point or i wanna enter at this
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point and then you just don't get
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anywhere close to whatever that value
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is so that's what i mean you set a plan
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you have some numbers in mind
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which is good that's great you're you're
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focusing on a trade plan
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you're focusing on risk management
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hopefully and all that
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but still when the trade is all said and
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done you're looking at the numbers and
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saying
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but that wasn't any re anywhere really
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close to what i was thinking i wanted to
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buy it or be able to sell that or take
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profit at or any of that
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so what exactly how is this all plane
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taking place
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well just to set up a little story this
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is you right here
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and your name is gonna be tim okay so
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you were tim
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and you go out there and you buy
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i'm gonna get real creative here xyz
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and you buy just keep the math simple
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for
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ten dollars so you buy xyz for ten
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dollars
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and the amount of shares you buy
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so you go out there and you purchase 100
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shares
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so you purchase 100 shares of ticker
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symbol xyz
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for ten dollars and let's just say that
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you decide you know what
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i want to sell i'm ready to sell
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and you're saying you know what i'm a
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disciplined trader
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i'm a good trader so to set this up
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you buy it 10
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and the price goes up
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to 10 and 50 cents
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and you're saying okay that's great
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that's good i want to make this at least
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a winning trade
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so what you're going to do at this point
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is you move your stop
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so you put your stop up at
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10 25. right so this way at this point
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if it pulls back
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you're still making 25 cents per share
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because for your
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like this is a trading 101 video as you
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saw at the beginning so if you bought a
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10
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and you can still sell it till 1025 that
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is a 25 cent per
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share gain but what is actually going on
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what needs to happen in order for you to
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sell
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at 10.25 well if the price goes down
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to that level you need to have what
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you need to have at least people out
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there willing to buy how many shares at
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10.25
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if you're saying well clay you would
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need to have at least 100 buy or 100
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shares
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available to sell right there i mean
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there would have to be people in the
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market that want to buy
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at least 100 shares at 10.25 for you to
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be able to sell right because for every
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sell
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there needs to be a buyer just like for
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every buy there needs to be somebody
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willing to sell at that price
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but let's just say that over here behind
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the scenes
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this is what's going on so at 10 25
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we have a trader here and they're
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willing to purchase
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25 shares then we have down here
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at 10 20 we have somebody
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that's willing to purchase
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50 shares and then down here
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at 10 10 we have somebody else
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and they're willing to purchase
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100 shares so what is the actual
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slippage well again the slippage
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all starts off like i started to with
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the original plane and the original plan
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is
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well i want to sell 100 shares
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at 10.25 that is the plan but what do we
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now know about what's going on behind
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the scenes well in all actuality at 20
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10 25
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there's only 25 shares out there that
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someone is wanting to buy
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so do you see the problem with the math
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there you want to sell
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100 shares at 10.25 but there's only
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somebody out there that wants to buy 25.
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so that means that if the price goes
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down there it hits your stop
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you're gonna get 25. so you're going to
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be able to sell 25 at the 10 25 mark
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so that person is now gone but how many
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shares do you still have left well i
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mean not to insult your intelligence but
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if you have 100
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but you just were able to sell 25 well
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now you have 75 shares left
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okay well now because i'm assuming
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you're using a market stop
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which would probably be wise it's going
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to go down to well it's going to find
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the next available
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buyer and the next available buyer as
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you said is at 10 20. so how many people
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or how many shares is this person
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willing to
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purchase well 50. okay well it's going
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to fill you there
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meaning you just now had another 50
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which means you have 25 shares left but
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this is what is known as slippage
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you wanted to get out at 10 25 but now
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sudden you're getting out at 10
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20. so how much slippage is that if
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you're saying well that's five
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cents of slippage correct you're
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learning you're catching on to what
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slippage is
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slippage is just what you wanna get out
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at versus what you actually get out at
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and because this person was hoping to
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get out of 10 25 and they actually got
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all
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got out at 10 20. for 50 of those shares
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they had to use trading
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jargon five cents worth of slippage but
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we still have the problem right that's
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the worst looking 25 i've ever seen
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we still this person still has there we
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go 25 shares
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left well okay well where's the next
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buyer at
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well the next buyer according to our
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story is down there at 10 and 10 cents
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so this person still needs to sell 25 so
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tim still needs to sell 25 shares and we
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have this person that's willing to buy
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100.
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so if you're saying okay well that's not
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a problem at all this person wants to
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buy 100
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and they only want to sell 25 absolutely
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so at this point the remaining shares
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would be sold
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at what price if you're saying well they
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would be sold at 10 and 10 cents
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absolutely the last 25 shares would be
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sold
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for 10 10. so my question becomes to you
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how much slippage occurred for those
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last 25 shares
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if you're saying well clay he wanted to
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sell at 10 25. he got out at 10 10.
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that means for the final 25 shares he
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had 15 cents of slippage
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absolutely now when you combine that all
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together and look at the math
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his average exit point is going to be
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below 10.25
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because of that slippage that occurred
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so the point here being
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just because on your level twos just
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because you see certain stock prices
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doesn't mean that you're actually gonna
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be able to get out at whatever price you
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see
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now how is slippage you know different
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from stock to stock there's a lot of
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attributes that go into that
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but the more volatile the stock is as a
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general rule of thumb
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the more slippage you can expect i mean
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if a stock is just
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flying all over the place and you think
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you're going to be able to nail an exit
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point
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or nail you know some sort of stop-loss
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odds are it's not going to happen now
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you could say well clay i want to use a
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stop limit
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and you can do that but of course that
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carries the risk of
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well what happens if it just keeps going
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to go and going down down down
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and then you never get out at all so i'm
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not saying that slippage per se is a bad
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thing
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i'm just saying you need to be aware of
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it because you can have
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a fantastic looking trade plan you can
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think that
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everything makes sense with risk
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relative to reward
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but if you're not factoring in the
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potential and possibility
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of slippage well then you can have some
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nasty final results
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or not necessarily nasty that's probably
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not the right word you can add some very
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different
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final results than what you had
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originally planned for but
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this is trading slippage this is how
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slippage works how it's calculated so
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when you hear somebody say oh man i just
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had like 25 cents a slippage
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that's what happened and that's you know
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what was going on behind the scenes that
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caused that to happen
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so if you do have any other questions or
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comments leave those down below
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hopefully i've explained this but if you
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have any like i said additional
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questions
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i'd be more than happy to try to answer
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them or at least point you in the right
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direction
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also if you just enjoyed this video as a
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whole make sure to hit that like button
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and then finally check out the channel
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especially if you're new if you're a
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beginner there's a whole
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you know playlist of one trading 101
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videos where i go over some of these
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basic concepts
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that when you're new and just getting
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started like i said uh you know you may
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not even have any idea to even consider
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and this is i would say one of them so
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check out that playlist and hopefully
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you decide to ultimately hit that
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subscribe button and become a subscriber
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to the channel but
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thank you for hanging out thank you for
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uh hopefully letting me explain this
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topic to you and like i said let me know
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if any questions below
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first off thanks so much for watching
[571]
the entire video real quick before you
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go
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i want to invite you to a live webinar
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web class training workshop online event
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whatever you want to call it but it will
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be me live
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revealing to you what i discovered that
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has allowed me to transform myself from
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being an employee
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to being my own boss including how i had
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only one losing day out of 73 days in
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total
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i'm going to cover three keys that have
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helped me unlock
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markets the first key is super weird but
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in a productive type of way
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the second key is super awesome because
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it quite literally is wired into our dna
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as humans making it very easy to use but
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in a cruel way
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this becomes a pitfall for many traders
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i'll explain it all though
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including how to avoid the pitfall that
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it creates for some and yeah the third
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key when you hear it
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sounds way too good way too good to be
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true but it's not and i'll show you
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how it all works then at the end i open
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it up for a question and answer session
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that is
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again totally live even if you can't
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make the live session
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i'll be seeing you soon
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