Slippage is most likely to occur under which market condition?

• A. Stable, highly liquid markets.
• B. Markets with high volatility but deep liquidity.
• C. Fast markets or thin liquidity.
• D. Markets outside trading hours.

Answer: (C)

Slippage happens when the price you expect to get is different from the price you actually get, often because there isn’t enough trading activity to fill your order at the quoted price. In fast markets, prices move rapidly as trades occur, so by the time your order is executed the best available price may have already shifted, causing you to pay more to buy or receive less when selling. In thin liquidity, there aren’t enough buyers or sellers at the current price, so your order may have to be filled at worse prices or across multiple price levels. In contrast, stable, highly liquid markets have plenty of depth, so orders tend to fill near the displayed price with minimal slippage. Markets outside trading hours typically have lower liquidity as well, but the strongest link to slippage in this context is the combination of quick price moves or limited depth.