Trading slippage is the gap between the price a strategy expects or uses as an execution reference and the price actually received on the fill.
A backtest that assumes every trade executes exactly at a signal price can overstate live performance when real orders face changing quotes, spreads, latency, and market impact.
Slippage is one component of implementation friction
Slippage is not the same thing as commissions, exchange fees, financing, or borrow cost.
In a backtest cost model, those items may be combined into one all-in basis-point assumption, but the underlying sources of friction remain different.
Strategy turnover determines how often the capital base is exposed to per-dollar trading friction. Holdout sets address validation, not execution.
Use the Backtest Transaction Costs calculator to test how a chosen all-in cost assumption interacts with turnover.
Slippage is not constant at every size
Execution quality can change with order size, liquidity, volatility, urgency, and venue conditions. Market impact can become nonlinear as an order becomes large relative to available liquidity.
A fixed slippage estimate is therefore a scenario assumption, not a universal property of a strategy.
Sources: Investor.gov, Executing an Order and Grizzly Bulls Backtest Transaction Costs.
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Stress execution friction
Test how a chosen all-in basis-point cost assumption changes net alpha as strategy turnover rises.
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