No.2 Starting in Trading: What I Wish I Knew From Day One

📊 Spread & Slippage: The 2 Hidden Trading Costs You Need to Control

🚨 Did you know that spread and slippage can cost you money WITHOUT you even realizing it?

First, let’s clarify something: spread and slippage are not commissions. They are trading costs that you may incur when executing a trade.

1️⃣ SPREAD — The Bid/Ask Difference

Definition:
The difference between the bid price and the ask price of an asset.
It represents an implicit cost of trading and is closely related to market liquidity.


🧱 Formula:
Spread = Ask Price − Bid Price


📌 Practical Example — Tesla:

Bid: $340.50 → what buyers are currently willing to pay
Ask: $340.55 → what sellers are currently willing to pay
Spread: $0.05


🔎 Where can you see it?

Check the top-left corner of the TradingView chart, where the bid/ask prices are displayed.



🧠 What does this mean for you?

If you want to buy immediately, you generally pay the ask ($340.55).

If you then wanted to sell immediately, you would generally sell at the bid ($340.50).

⚠️ That $0.05 difference is the spread.

In other words, you start with a $0.05 per-share difference to overcome before the price moves in your favor.



🤔 Why does it matter?

✅ A lower spread is better for traders because it means a lower transaction cost.

💧 In highly liquid markets, the spread is usually tighter.

⚠️ In less liquid markets, spreads can become significantly wider.

💡 This is why the spread is an important trading cost to understand. The tighter the spread, the less price movement you generally need to overcome that initial difference.



2️⃣ SLIPPAGE — When Your Execution Price Changes

Definition:
The difference between the price you expect to get and the actual price at which your order is executed. Slippage can happen because of volatility, low liquidity, or execution delays.




📌 Types of Slippage
✅ 1. Positive Slippage: Sometimes, an order executes at a better price than expected.
Example: You expect to buy at $10, but your order fills at $9.90.

❌ 2. Negative Slippage: Your order executes at a worse price than expected.
Example: You expect to buy at $10, but your order fills at $10.10.



🤔 What Causes Slippage?

🌪️ Volatile markets: Economic news, geopolitical events, market shocks, etc.
💧 Low liquidity: Not enough buyers or sellers at your desired price.
⚡ Market orders: They execute at the best available price, which can change within milliseconds.


🎯 Bottom Line:

✅ Low spread + high liquidity = generally better trading conditions.
⚠️ High volatility + low liquidity = greater risk of slippage.

🧠 Understanding these costs is part of becoming a better trader. Small costs can add upsignificantly over hundreds or thousands of trades.

💬 Have you ever been surprised by spread or slippage? Tell us about it in the comments!

👇 Is there a trading topic you’d like us to explain? Drop it below!

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Learn. Keep what works for you. Add your own edge.

WFF

🔗Publication link: https://www.tradingview.com/chart/GOLD/0igQE5FG-No-2-Starting-in-Trading-What-I-Wish-I-Knew-From-Day-One/