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Stop order slippage

The gap between a stop's trigger price and its actual fill, caused by the fact that a triggered stop becomes a market order into whatever liquidity remains.

A stop is a trigger, not a guarantee. Once it fires it must find a counterparty, and the conditions that trigger stops — fast moves, gaps, halts — are precisely the conditions where the book is thinnest.

The expensive version is clustering. When many stops sit just below an obvious level, triggering them consumes the bids beneath, which triggers more, which is why fills bunch up far below the trigger.

Example: 1,000 shares with a stop at 30.00. Overnight news gaps the stock open at 26.20 and your stop fills there. The planned loss from a 31.00 entry was $1,000; the realised loss is $4,800. A stop-limit-order at 29.80 would have capped the price but left you holding the whole decline.

Related: stop-order, gap-risk, halt-auction, market-order-collar

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