Slippage, spread, and latency: the hidden mechanics behind automated fills

The bid is the highest displayed price a buyer is offering and the ask is the lowest displayed price a seller is offering. The distance between them is the spread. A market buy generally interacts with the ask, while a market sell generally interacts with the bid.

Displayed spread can widen around news, session changes, low-volume periods, or sudden volatility. Historical bars often do not show the full spread that existed at the time.

Slippage is commonly measured as the difference between an expected reference price and the actual fill. It can be favourable or unfavourable, although protective exits during fast markets often experience adverse slippage.

Backtests should include realistic assumptions for spread, commission, and slippage. A strategy with a small average trade may be especially sensitive to execution costs.

Total latency includes signal calculation, alert creation, internet delivery, authentication, platform validation, broker communication, exchange handling, and status return. Optimising one step does not remove delays elsewhere.

A well-designed system measures stages separately and does not sacrifice safety checks merely to display a smaller headline number. Reliability, duplicate control, and correct broker state are part of execution quality.