What is slippage, and when can market orders experience it?

• A. A guaranteed execution price.
• B. The execution price differs from the expected price, typically in fast markets or with thin liquidity.
• C. The cost of borrowing shares for short selling.
• D. A delay in trade settlement.

Answer: (B)

Slippage is when the price you actually pay (or receive) for a market order ends up being different from the price you expected at the time you placed the order. Market orders are meant to get you immediate execution, but in fast-moving markets or when there isn’t enough trading volume (thin liquidity), the price can move between the moment you place the order and when it’s filled. That means you might buy at a higher price or sell at a lower price than you thought.

This isn’t about guarantees. A market order doesn’t promise an exact price. It’s also not about borrowing costs for short selling, nor a delay in settlement. Those are separate concepts.