An explicit allowance for execution costs built into your risk and expectancy numbers, rather than a surprise discovered afterwards.
A slippage budget is the amount of edge you are willing to hand to the market in exchange for getting filled. It belongs in the plan next to commission, not in a post-mortem.
Build it from data. Suppose entries average 3 cents of slippage, exits 2 cents, stops 9 cents, and commissions are $0.005 per share round turn. On a $0.75 stop-distance with 650 shares, friction on a stopped trade is roughly (0.03 + 0.09) x 650 + $6.50 = $84.50 against a planned $487 loss, so real 1R is about 1.17R. Every performance statistic you compute needs that inflation applied.
The budget also decides which strategies you can run. A system with a +0.15R edge and a 0.17R friction bill is not a marginal system, it is a negative one. Scalping dies here far more often than it dies from bad signals.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.
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